How to get Seller Financing Explained - If you are asking for Seller Finance you are doing it wrong

Broke people ask for seller financing at the beginning of the deal. People come to me saying, hey, I don't have any money, I'm going to need to learn how to seller finance like you did on your last 23 deals to start scaling. By the way, if you don't know who I am, I'm Christian Osgood. I run Multifamily Strategy, 2 property management companies, over 400 rental units, and I was able to buy a majority of them through seller financing. Now, while there's many types of creative finance that we've used in our portfolio, as well as a little sprinkling of conventional financing, You do not need seller financing to get started. And if you open with that, you're thinking about it wrong. On today's video, though, I'm going to show you exactly how to do it. So let's roll. Everyone, welcome back to Multifamily Strategy. Again, my name is Christian Osgood. I'm super excited to share this with you today because I'm going to share what I think really is the secret to seller financing. You don't lead with financing. Now, first thing I'm going to do in every opportunity is deal debt equity. And if you follow the channel for a while, you've heard this a million times. I want you to imagine a car salesperson. You are going to go buy a car. So I don't know why this doesn't apply to everyone automatically for housing and apartments, but play this out with me. You go to a car dealer. Hey, I'm looking to buy a car. Excellent. I have great cars. I can sell you a car. All right. What do you have? Well, the car's not in yet, but when I do have a car in, it will be fantastic and you will love it. All right. How much am I going to need to put down on this car? Well, depends on the make and model that I find, but it will be— it'll be reasonable and it will be good. Okay. Weird. I'm going to go ahead and leave now. If you don't have a product that you are selling, you can't align a debt product to it. You can't raise capital. The money doesn't matter. So if you're watching this video and you're like, wait a second, I thought I was going to learn how to buy properties $0 out of pocket magically on this video. I will show you how to do that. But the way that you go about it is not looking for seller financing. We're not searching online going, what is seller financeable? Or look for only seller finance listings. We're not targeting the listings, we're looking for deals. Now on a deal, you can win on two sides. You can win on the terms, or you can win on the price. And if you win on both, congratulations, it's an amazing deal. But you can do a deal on either one. You need to make sure that it cash flows in long-term cash-flowing fixed-rate debt. If you could do that, you can buy infinite amounts of real estate. You can do this again and again and again. Every time you close, your income goes up. If you can't win on price and you can't win on the terms, Guess what? You don't have a deal yet. Don't buy that. It's that simple. So instead of discussing the financing first, which is basically putting a sticker on your forehead saying, hello, I'm broke and I don't know what I'm doing, we're going to ask them about the deal like we would if it's bank financed. Tell me about the property. Is it still available? Why is it that you're trying to sell it? Or if you're talking to a broker, what do we know about the seller's motivation? Why are they currently selling and what is their goal with the transaction. What you're trying to do in the beginning of the conversation is you already know what a goal for you is. It's long-term cash-flowing fixed-rate debt. We want to increase our income permanently by buying a property. Now, on their end of the equation, what are they trying to solve? Are they trying to do estate planning? Are they trying to scale up? Are they trying to scale down? Are they trying to get liquidity? Are they trying to supplement their income? What is the actual objective? If you can figure out the objective, that's very helpful. Now we talk about the deal. If you jump into the money again, you're just going to sound broke. So we talk about the financials of the deal instead of your money. No one cares about your money right now. We're going to talk about, okay, talk to me about what does income look like? What do you think it should be? What's the highest rent we've proven we can get there? I don't want to see pro forma, but if you have, which means basically made up numbers, that's what a broker will send. The projections is the pro forma. What I want to see is if you have a building and say they're all the same, they're all 2-bedroom, 2-bath units, it's a 10-plex. And while a lot of them are rented at $800, you have 2 of them rented at $1,000. I believe a pro forma that says we can get rents to $1,000 because you've proven that you can do it 2 times over. I think that's a reasonable assumption. Now maybe the broker's saying, well, market rate is $1,250. If that's true, why haven't they got it there? These are the type of questions that I want to start having in an actual conversation. I don't want to pay for work that hasn't been done yet on a project. That's my upside and my work and my risk. But we're talking about the deal. Then I get into the financing. All right, based on the price that you want, how do you think the bank's going to look at this? Do you think that we're going to be able to swing this one? 80% down? What, what obstacles do you foresee us running into at the bank level? I want to make sure we get the financing. This is where they bring up, there's some deferred maintenance that we may need to address to get the right insurance to be bankable. So deferred maintenance, we've asked the question. Hey, the income today might not quite fit into the bank standards for income on the property. We can call this the DSCR, debt service coverage ratio. Income might be a little low. They might need more down to make this work. Okay, that's really good to know. This is setting up the stage for potential seller financing. But again, we're not talking about our money or the financing. We're talking about the deal. Then we're talking about all the available debt products. So if we go through and we find, that bank financing is perfect for the property, very likely we're going to use bank financing. We found our debt product. If we found there's deferred maintenance, there's bad bookkeeping, there's not enough income to get a bank loan yet, now it is natural and normal to ask the question, all right, it looks like the deal works if we can get the right debt product. It doesn't look like it's bankable today. I would like to get a path for me to get control of the property and get it to where it needs to go. If you believe that we can hit this income like I do, we shouldn't have any problems operating it. I'll give them a 20-second spiel on here's what I'm trying to do. I'm trying to retire my wife. So I am after cash flow. I am on a mission trying to retire my wife through real estate. This is exactly what it's going to look like for this project. This looks like just about what I'm looking for. Again, not bringing up the financing yet. I need to get the income up on this to get the bank financing. So I'm going to need some time on this. And the interest rate where it looks like this is going to work is going to be about 5%, which is going to result in, and I will give them the actual payment. So what I'm thinking, and then give them an actual proposal. Don't throw out like, oh, are you open to carrying a contract? Or would you entertain seller financing? You're teeing yourself up for a no. All you're asking is, hey, this is what I'm thinking. I'm thinking on this million-dollar property, I can put $200,000 down. Even if you don't have it yet, you're going to find the money. Figure out the debt first. Deal, then debt, and then we'll figure out the rest of the money. So I can put $100,000 down, or I can put $200,000 down. This deal is only going to work at 5% interest while I actually get these incomes up, or I do these renovations, or I do these repairs, or I get the right insurance. Whatever it is that you're doing in your project, you explain why you are using the financing that you are to get to where you need the project to be. At such time, it works great in bank financing. We can go ahead and do a refinance. We can cash you out. This is what I think any bank is going to look at as well, is, hey, if it's not conventionally going to be bankable, why are we looking at cashing them out? Let's come up with a roadmap to get them to exactly where they want to go. You are not asking them to concede anything. You are giving them a plan to get them exactly what they want. That is the difference with an experienced investor negotiating a deal is we're doing the deal first, then we're talking about the debt products, and then we're giving them an actual proposal. This works at 5% interest. I'm going to need 3 years. I may be able to bust this out in 2 years to be safe, but 3, 4, 5 years. Many of my seller finance notes, I have found that the seller's actual goal was, I'm looking for long-term income for my family. Many of them, they pitched me on seller financing. They're like, well, you can cash me out, but if I can get a little bit more in price, I have 15, 10, and 30-year seller finance notes. You can absolutely get long-term debt if someone wants to get cashed out. We learned that in the conversation, and now our proposal actually matches what they're trying to do. And this is the difference between a rookie investor trying to buy zero-down real estate and an experienced investor coming in and buying low-to-no-down real estate. Now, you may be thinking, and rightly so, wait a second, you just said $200,000 or $100,000 down. That's not no to low-down real estate. Well, the beauty of that is there's a lot of other ways that you can bring in money. You can bring in equity partners, you can bring in private capital, you can get a second note, you can do a pledge agreement to get your LLC. There are so many different ways that you can bring in the down payment, but we don't know what returns we can offer an investor, or we don't know how much excess cash flow there is for additional debt until we negotiate the deal and our primary first-position debt product. That is your mission on the call. Negotiate to the deal and the debt. If there is room at the end where there is room to push the value of this property, or there's so much cash flow you can take on additional debt, you've answered the question for the remaining capital. Now we're going to line up that capital to whatever investor. Remember the car analogy. I now have my vehicle. Okay. You didn't know what you were getting car-wise. Well, now the car's in the shop. No, it's not a Ferrari. It's also a lot nicer than your Honda Civic. Our actual deal here, we're working with— I'm not a car guy, but we're working with this Lexus, and it has— we're getting a fantastic price on it. The payments are now within your budget. I can line up the opportunity to the right person because I've actually found the deal and the debt product. I can tell you what it costs. I can tell you what the cash flows are. I can tell you everything about our actual vehicle. And that is what you are building every time you negotiate a deal. You're creating an investment vehicle. Sometimes you get 100% seller financed. It's rare. Usually this is how you lay the groundwork to get your offer accepted. And that is how you do seller financing. For context, I've done this on 23 or 24 of my last 30 deals. Creative finance is awesome. It can get you into deals that no one else can do. And it is ludicrously simple if you follow the order of deal debt equity. I'll see you on the next episode.