In this video I talk about seller financing and how seller financing works. When you meet with motivated sellers who are looking to sell their property, a situation you will often face is that your initial low priced cash offer is just too low for the seller to be willing to accept. In situations like this it will help you as a buyer and investor if you have a creative financing option like seller financing that you can discuss with the seller.
This works really well with houses that are in great shape, and do not need much repair to be rent ready. These houses can make decent rentals to add to your portfolio and since you already have financing in place (with the seller financing), there is no limit to how many houses you can buy. So if your goal is to be purchasing many rentals then this is a great strategy for you.
If you want to generate more motivated seller leads that may consider seller financing then you can target homeowners with 100% equity and no mortgage using software like this:
When you meet with a seller, the first thing you need to know is if the seller has a mortgage or if they own the property free and clear. In situations where the seller is older, you will often find sellers that have lived in a home for many years and have no mortgage since they have completed all of their payments and they now own the property free and clear with no mortgage. Some of these sellers want to move because they want to downsize or they want to move closer to their grandkids. If their house is in decent shape, they may not consider your low cash offer, but they might be willing to accept a higher offer with seller financing.
The key thing it to be able to explain it to them in terms that they can understand. Usually the seller will be looking for just a little bit more than your low cash offer. Or they may need your offer to be substantially higher. This is a good opportunity to find out more information and to dig a little deeper. Why are they selling? Why not keep the home? Where are they moving? Do they have a mortgage? A lot of times you will uncover important information that can be crucial to you making your offer. They may uncover some “pain points” like the house is too big, or they can’t take care of it anymore, or they are moving to an assisted living facility, or they want to move closer to the grandkids, or they are considering listing it on the MLS but wanted to see what your cash offer would be.
You must know if they have a mortgage, or if they own the property free and clear with no mortgage. If they do have a mortgage you would want to know what their monthly payments are and you should be moving towards structuring a “subject to offer”. However if they have no mortgage and they own the property free and clear, they may be open to a seller financed offer.
When you start talking about seller financing, you will have a few points to consider when you are structuring your offer.
1. Your Down Payment (how much you will put down)
2. The Term (how many years for the mortgage)
3. The Interest Rate On The Mortgage
When a seller asks me how seller financing works, I start out by explaining that I will give them a certain amount as a down payment, and then pay the rest over time. I like to start with a decent sized down payment of $10,000 or $20,000. I then use a mortgage calculator like Google’s mortgage calculator to show them what their payments would look like if we did a 30 year fixed rate mortgage or a 15 year fixed rate mortgage.
Usually the seller will push back asking for more money down, a shorter term and a higher monthly payment. You can learn how to get very creative with this by going through different scenarios. For example you can increase the down payment and reduce the purchase price. Or you can increase the purchase price and reduce the down payment and interest rate.
While you are doing this, you need to be listening to the seller and finding out what their real objections are and what they truly want. Maybe they are relocating to be closer to the grandkids and they need more cash now in order to make that move. Maybe they are not focused on the interest rate but more focused on how much money they will be getting every month.
In the video I show you examples so you can understand how this works. If they absolutely reject seller financing, then you can go back to the low cash offer. They will often circle back to the seller financing. If they reject the seller financing and are absolutely stuck on their number, then you can try and either refer it to a listing agent or create a novation offer. Learning how to employ creative financing strategies like seller financing will make you a better investor and will allow you to buy more houses. If you want to buy rental properties and build your portfolio fast then seller financing is an excellent strategy to employ.
Learn how to get started buying houses from motivated sellers by coming to my Wholesaling Real Estate Boot Camp where I teach you how to find motivated sellers and how to market to these sellers to buy houses at wholesale prices. We have one coming up next week!