Creative Financing for Commercial Real Estate Properties

Seller financing is the best option for that. How to structure something that makes them money and you money.

We're moving because we just yesterday closed on a building using creative finance, an office building, a small office building.

Well, don't bury the lead. Tell us how that went. I'm just curious.

It's— it was amazingly easy. We met with the couple. We didn't realize we were looking for a small office building, but it came up and I reached out, made a call. I didn't think their price was quite, quite where it should be. And so we negotiated it down to where we're comfortable with the price. And then for the down payment, we're actually giving them 2% down.

Well, all right. Well, you got to walk us through this for a second.

Okay.

So That'd be nice.

I love that you said like it was much easier than I thought. So commercial tends to be way— it's a way simpler process. The reason why I say it's a simpler process, because the sellers are already— they already know about seller financing. Like this isn't a new concept. This isn't typically— this isn't their only asset. Like they own multiple assets. So seller financing becomes much more spoken about in how Higher-end homes, multifamily, commercial real estate, mixed-use, or mobile home parks, you name it. It's almost every other asset class except for your standard median single-family home. Everything else, seller financing is super normal. And then it's just our job to educate the rest of the population so that way we can help them by buying their property and selling it. So, all right, before we dive into the original deal, we're getting a twofer here. So Tell us like the terms of this deal.

Okay, so the terms, we're purchasing it for $400,000, putting actually $7,500 down. So that's not even 2%. Monthly payments to them, they started at, they wanted $1,750 and we're at $1,425 a month instead. We take over Everything they started with, they would only do a 3-year term. We're at a 5-year term. And on top of it, there's 6 other offices that we will be renting out.

Good. I love it. So did you say $400K purchase price?

Right.

$400K purchase price. I wasn't even intending doing this, but I feel like we have to at this point. $400K purchase price. We have a $7,500 down payment. 48-month term and a $1,456 monthly payment.

$1,450.

$1,450.

And interest rate on this one, it is— we've got them at 3.25%. They started at 8.5%.

Is anybody interested in buying any commercial space? I mean, you get it. There should be so many questions for Annette. Yeah. Okay. $400K, $7,500, 48-month balloon, 3.25% interest rate. And what are the rents? So you're going to take over one of the offices of 6?

Correct. No, we're going to take over one of— we're going to take over one of 7. We have 6 others that we can rent out.

Are they currently already being rented or do you have to fill them?

We have to fill them, but we already have 2 people interested.

Okay, so what's the expected rent?

$650. And that includes everything. So that does include also our internet.

Yeah. So there's going to be expenses and holding costs. But as far as revenue goes, $650 times 6, you're making $4,000 in revenue, $3,900 in revenue. Now there's going to be some expenses, but my guess is that you're at least— you're going to be cash flow positive.

That's what we're— that's what we've got so far in our business plan for it.

Yeah.

Is that we'll be positive and we're actually looking to apply some of that to purchase other properties.

I love it. Before we dive into the original deal we're going to do, anybody have any questions for Annette when it comes to— she just like slides this in like, oh, just grabbed a quick seller finance deal with 2% down and a 3.25% interest rate.

Were they— they own it free and clear, Annette?

They do. And they own several other properties that they're willing to talk about a couple of months down the line.

Nice. Had they tried to sell it or how'd you find out?

It sounds like they tried to sell it through a local realtor and they said the realtor didn't specialize in commercial real estate, so he wasn't even showing it. But they originally listed it at $500,499.99, which is just out of the ballpark for what it is.

Does it need any—

No. New roof done 2 years ago, new carpeting at the same time. There's, there's nothing it needs. The only thing that it might need possibly is a new refrigerator in the kitchen.

Oh man. That's a deal killer.

Yeah, I would turn it down.

Yeah.

What was the—

how did you find it?

It was listed on Facebook Marketplace.

Love it.

And I just thought, well, doesn't hurt to check on it. Reach out.

So Facebook's— Facebook's good. Outside of just like stalking people. That's good. Well, And let's start— let's, let's have this briefly because like some of you, right, don't need a commercial space right now for your business. And then— and Mike, they have another business too. That's pretty, pretty cool businesses. So they were looking for commercial space. But let's look at this asset in, in a different perspective where maybe you don't need commercial space. So you have 7 units. At $650. And I know that office space could be hit or miss. Don't get me wrong, with COVID things like that happen and sometimes you get creative. But when this thing is fully occupied, I mean, it's bringing in like $4,500, $4,600. So if this thing could make $1,500 or $2,000 a month after expenses, that's if you just go based on our average numbers. That's like 5 rent-to-own deals, right? If you're using $300 a door, it's like 5 deals in one. So I just want to get you guys thinking about this because this might not be what you're looking for now, but in the future there's just as many opportunities. Now, I don't know what this building looks like, but my guess is you guys may want to cost seg this and get some taxes back if you're going to hold on to it for, you know, at least 5 years or 6 years or whatever. So then you guys are getting a massive tax relief on this building. And if you did one of those a year, you'd save a ton of money on taxes. So especially with the new beautiful bill, which I believe has some really big incentives in regards to some of these things. So just, just an opportunity, especially those of you guys that are working W-2 jobs, make good money. Like these are ways in order to save money on taxes, not just to create more cash flow to retire. Does that make sense? Yeah, I'm not seeing a ton of room for your new deal, but this deal seems just as good. I'm like, I'm more excited about this one right now. Go ahead, Annette.

They—

when we went to look at the building, they actually had a huge sign. It sounds kind of like what Chris ran into, but they had a huge sign in the window that said for sale, owner financing available, and nobody was biting on it.

Because the crazy thing is, Nat, is most people are confused by it.

I think so.

They are. They're not sure how to work the terms to make it advantageous because let's bring a little bit of reality to the table. If you're used— even if you're a really good real estate investor, you're used to using traditional bank financing, you're being told what is required versus in seller financing, you are able to create what is required, which is a pretty big concept. And people aren't used to doing it where it's like, wait, I can just like tell them what I want to do for a down payment, or we can negotiate that and like just to figure out what the interest rate is in the timeframe. Because even if you're really good at commercial or You know, any other type of real estate, you just— you're being told. So then you just go do it based upon the parameters that you have.

And that's the nice thing is I learned all of that in the modules because we had dabbled with real estate before, looking for possible creative financing, owner financing. And I was the same way. They would tell us what the terms were and we either accepted it You know, or we walked. And now I wouldn't have been able to get this building for this price, negotiate the terms without the module.

Yes. You're referring to a QLS home study course. So if you just go through the modules just to go buy one piece of real estate, I would assume it's worth it. And those that just showed up on here, you know, the welcome, just W-E-L-C-O-M-E. And I forgot how to spell. Just use that for the coupon code. You can get $200 off it whether you do Apprentice, QLS, or any other course. So go ahead and grab that as well. So, Annette, I don't even want to do the other deal right now. I feel like I'm way too far invested into this and we only got 9 minutes. You guys okay if we just keep rolling with this? Okay, awesome. So with that being said, walk us through Like what happened with the negotiation? Because then we call it negotiation, but it's really getting good seller financing terms. It tends to be like a collaboration where it's like, let's have a conversation and figure out if we can make— if we can create a good deal for us and you can have a good deal for you. So walk us through— walk us through how those conversations went.

Well, it was kind of tense at first, to be honest, because We went, we looked at the building, we walked through, and I knew going in that their price was out of line, that there's no way we could pay them what they were asking. And so we're walking through and the husband is really the main one making the deal. And so I told him straight off, we were probably in the 3rd or 4th office, and I said, well, I'm just going to let you know, we're here to see it, but there's no way we're going to pay you what you're asking. And he walked out of the office, went to the front door, and says, "Well, thanks for stopping. We'll catch up with you later." And I said, "Okay, if you think about it again, give us a call." We got to the truck, went to open the door, and he called us back in.

All right.

This is huge. You guys don't realize how big this is because the amount of confidence that you just struck in that. Conversation is huge. You're in person, you're with somebody. Might have been a little softer on how I approach that, but but you know, you guys in Minnesota, you just pretty blunt to the point. So, Walkus, how different was it from when you first when we first started chatting with you, right? You first joined our community versus being able to have that conversation in person. Did you notice a huge difference in like your confidence or?

You know, and I think my confidence definitely got a boost after you were here because I watched— I was watching the seller, but I was also watching you, your mannerisms, listening to what you had to say, how you held yourself, how you presented yourself. And it was very different from the way I was. Number one, I was spending way too long on appointments and just How do we say it? Telling a story. I was, I was giving them too much information upfront, where now I've gotten to be, look, I'm here as a possible solution for you. I'm here to help you. And if you accept it, great. If not, I'm on to the next one.

That's huge and confidence-wise too, especially if this is like the first time you guys have shown up to these calls. I know that from training people in our community, from us training people, that most of us think when we first get involved in creative financing that we're like, somebody's doing us a favor. So that turned that on our head and say, no, no, I'm here to buy your property. You, you haven't been able to sell it. Let's try to figure out a solution because I am more than likely your best solution. So I love how you're like, look, guys, Being honest, like, I'm not gonna go beat around the bush. Like, we're just not gonna be able to get to this price. So let's try to talk about terms that would then make sense. All right, so then you suck him back in, or he asks you to come back in, right? Because you did an awesome takeaway where I was like, oh, we'll see you later then. Uh, I wish this was on camera. Then you go back in there. So then what's, what's the next conversation? How's that work?

I think when you said that, I think the best thing was Looking at Mike's face when I said that, Mike was mortified. Like, what? What did she just say? What? We drove. We drove this far and now we're just leaving five minutes later. So we went back in and he goes, okay. So say we were to come down. What would we need to come down to? And right away I went to three seventy-five. So of course I knew that would be too low, but it gave us room to negotiate. And he says, well, and I love this because he goes, young lady, we won't be able to do that. And I was like, but I said, okay, well, let's meet somewhere a little more reasonable so we can calculate terms that are also reasonable because it's empty. I've got to go out. I've got to find people. I've got to have people move in, which is all going to take time. And oh, here's the other kicker. I don't have payments on it for 3 months.

Oh yeah. Give you time to fill the units.

Yeah. So I love this.

This is— this makes us feel so proud. All the things that we were like, just like you just do this and try this and do this and all of a sudden it all comes together in a deal.

And this one, when they— at first when he said 8.5%, I used a And I was shocked, but yet I laughed at it. And he says, well, what's so funny about that? I said, you have no clue how the creative financing work. Here you are selling this building on owner finance, and if this is how you're approaching it, no wonder you're not selling it. So I had to laugh 'cause he looks at me and he goes, well then, I guess you can school me on it. Tell me what you wanna do. So of course I went low on interest rate as well. I said, well, we'll give you 2, 2.5% interest, and then if you want that 5 to 10% down, we could possibly look at it then for something like that. And he goes, I think 2 to 2.5% interest is a little low. So then that's when I told him, well, tell you what, I'm going to go home. Put pencil to paper, meet with the team, and I'll call you back in two days with our best offer. And at that point, again, you can tell us you accept it or we walk. Love this. And I sent him an offer the next day with the exact terms that I gave you, and they accepted.

I love it. All right, who's got who's got a question or two for that? I know we're running short on time. Who's got Who's got a question or two for Annette? Yeah, this is like a movie. This is why I was like, let's keep going. This is great. I'm gonna like put this in ChatGPT and see if it'll create a film on Annette.

Who is this new Annette?

I—

this is what I'm saying.

Like this.

I know. This is what I'm saying. Go ahead, Stephanie.

I was just saying my dad taught me to be that way when I buy a car. And until Annette, until you were speaking, I was like, oh, it's the same. I have a box, but I am not going outside of my box. I love that. So I do that. I actually write the offer before I leave my house when I'm doing a car, and then I set a timer. I'm awful when I buy a car. But it's the same attitude. Like, I don't actually need this. I am willing to help you. However, it has to be reasonable for me. So I just appreciate that.

Aha.

For me, I, I love this approach to another investor. Like, I wouldn't suggest that Annette walks into everybody's home, is like, take it or leave it. With like a single-family home. But I love that, like, you weren't intimidated by somebody else that was an investor and he was, he was positioning himself. Right. And you called him on his bluff and you knew that you were one of the only people that are going to solve that problem. So that goes for everybody. Like, just because you're talking to somebody that owns a ton of real estate does not mean they understand creative financing. I felt like I I realized that when I went to Major League Soccer and I spoke at an event and I was sitting next to all these giant private equity companies and fund managers and they were like, so what do you do? I was like, yeah. So I started explaining subject-to and they're like, we've never even heard of that. We don't even know what that means. And like, these are people that control hundreds of millions and billions of dollars. So know that when you walk into a building, if you have gone through the course, you're part of our community, like you are somebody that has not 99% more knowledge on these subjects than anybody else. Not sure where to get started? Go to smartrealestatecoach.com/getgoing for free books, strategy calls, and a whole bunch more. We're going to help you get going the wicked smart way. We've been after this for over a decade doing exactly that. Go ahead, Jeff.

Why was it sitting vacant like that? Like, what was the issue? They just weren't managing it well.

They're, they're absolutely terrible. What it was she had, you're going to get a kick out of it. She made baskets for children with little gifts in them and balloons, and that's what they originally sold in there. Well, then when that business flopped, they turned it into office space expecting they could rent it out. But again, their prices were way off. And so they were wanting $1,000 an office for what we're going to be including for $650. So they, they own all this property of— we haven't gotten into, I haven't had the conversation with them yet of how they acquired all these different properties that they have. They own 2 homes and multiple commercial buildings. So we haven't gotten into that conversation yet, but it's just amazing to me. They have all this property and this is how they're choosing to sell it. Really, they have no clue on how it works. Yeah.

Awesome. I love it. Know this, that seller financing is some people's first choice. I have an acquaintance of mine. He runs that or used to run the Connecticut Real Estate Investment Group or the RIA, and he bought all his multifamilies on seller financing and then sold all of his multifamilies on seller financing because he didn't want to incur the capital gains and he just wanted passive income without being a landlord anymore. He was like, let the next person be the landlord and own the asset. So he has like millions of dollars in seller financing that he just collects on and lives in Florida at this point. So just know, like, that is the case for most people or like a select group of people that seller financing is the best option for them. Just figuring out how to make money, how to structure something that makes them money and you money.