Okay, I confess. Once in awhile, I do indulge in McDonald’s burgers. And when I order a #1 combo, they always ask me if I want to “supersize” it.
The supersize combo gives me more fries and more soda, which may not be good for my health, but always sounds like a good deal when I’m in the drive-through.
When we’re buying houses, we can use a similar strategy when working directly with the owner of the house.
Instead of just talking about price, learn to talk about the terms of the deal. The terms of the deal will allow you to supersize your investment.
There are a number of reasons why a seller will consider providing you with seller financing and they include the following:
- Sell as-is – Most owners do not want to endure a home inspection and then have to use a contractor to make repairs to their houses before selling.
- Price – With seller financing we can often offer a higher price then our typical cash offer. All sellers like the idea of getting maximum value when selling their homes.
- No listing, no open house, no Realtor – The fast and easy way for a seller to sell a house without the intrusion of strangers walking through their home.
- Return on investment – Most homeowners who are in a position to sell with seller financing will be putting their capital in the bank. Have you checked what a CD is paying? Less then 1%! And with seller financing they can get several times better returns.
Now that you understand why it can be good for a seller, what types of offers can we make to allow us to super size our investments?
Let’s assume that the seller of this 3 bedroom, 2 bath home is stuck on getting $110,000.
Door #1: 50/50 Seller Financing – Half Now and Half in 72 Months
This offer gives the seller $55,000 at closing then the final payment of $55,000 in five years. As the buyer, what did you accomplish with this structure? I hope you see that it is equivalent to a zero interest loan for the next six years. This offer can appeal to sellers who need some money now, but don’t really need all of the money right now. Sellers feel comfortable doing this deal because the down payment is significant, which minimizes their risk.
In my market, this home will rent for $1,000 per month. This offer super sizes your cash flow for six years because you have no monthly debt service due each month.
How would you like to buy houses without needing to make a monthly mortgage payment?
Door #2: Free and Clear in 100 Months with No Interest
Sometimes you’ll encounter a seller stuck on a particular price and stuck on needing a down payment. The down payment helps them feel more comfortable about providing financing because it reduces their risk.
When a seller requires a higher price then I want to pay and when they insist on a down payment to get financing, I offer zero interest. This can be accomplished by focusing on the down payment and the monthly payment without talking about interest at all.
For instance, if the seller wants $77,000 for the house, you could offer them a $7,000 down payment and 100 payments of $700 per month. The home rents for $1,000 per month, which will provide cash flow against your $700 monthly payment, but the real beauty of this offer is that it is a 100% amortizing loan and in 100 months it is free and clear.
Door #3: No Payments For 6 Months
If your seller insists on a fair interest rate and a down payment, you can negotiate some other terms.
Wouldn’t it be nice to have no mortgage payments for the first six months that you own a house? Why not negotiate that right into the purchase of the home with seller financing?
If the seller insists on a large down payment, maybe you can just pre-pay the first six mortgage payments to get him some cash at closing and then enjoy having no payments for the next six months.
The seller will like the idea of getting paid the first six payments in advance, and you’ll enjoy not having any monthly payments while you fix up the house and get it rented.
Take the Winter Off
If you are considering buying a vacation home, why not find a seller to finance it for you with terms that work best for you? Depending on the location of the vacation home, it can be difficult to keep it occupied in the middle of winter. If that is true for your vacation home, why not negotiate that into your deal?
Ask the seller if you can skip payments every year in January since it will be difficult to rent in the middle of winter.
Real Estate Investors Are “Problem Solvers”
When presenting an offer to buy a house, always remember the seller has a problem (the house) and you have a solution (an offer). Think outside the box of just a low-ball cash offer and learn to present multiple offers that focus on what the seller needs (typically higher price) and what you need as an investor (more cash flow).
The benefits of getting seller financing with low/no down payments and low/no interest will allow you to super-size your investments.
I love buying houses with seller financing and, you’ll love structuring deals that provide great cash flow and amortize lightning fast to allow you to own real estate free and clear. Sometimes you can use the time value of money to simply structure a deal that meets your investment goals and solves the seller’s problem by knowing what is important for everyone involved.
Have you done deals with seller financing? If so, tell me about one that you’ve done.