Christian Osgood shows real estate investors how to negotiate their own financing instead of accepting 7-8% market rates. Four strategies: seller financing at negotiated rates, bringing in equity partners, borrowing from private lenders, and blending debt with preferred-return structures that lock in fixed returns.
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Did you know you can choose your own interest rate? Huge problem right now. Interest rates skyrocketed. Don't know if you know this, but it's been, it's been the case for about a year. So in this video, we're going to cover how you negotiate and choose your own interest rate. I'm Christian Osgood. And here we go. So on interest rates, we've watched the banks go from, I mean, my lowest debt is 2.99%. And I've seen some people get 2.75%. So I mean, we came sub-3%. Now we're up to 7.5%. In some cases, on some loan products, we're above 8%. When interest rates spike like that, it is really hard to make the deals work. Your cost of capital goes up, but we haven't seen pricing go down proportionally. So if your debt's twice as expensive, but your pricing has gone down maybe 5% in most markets, a lot of stuff is just kind of stuck. How do we get around this? Well, you can negotiate your own interest rate. We talk about seller financing all the time. I might as well start with that, but there are some other methods I'm going to share in this video. So stay tuned. I am going to teach you how to do this all the way across the capital stack. So number 1, the most simple one, seller financing. You can get these properties low down where you're financing, say 90%, in some cases 100% of the purchase through the seller. That is the first place that you want to go to negotiate the interest. The person who already has all the equity, see if they can finance that equity to you. That is the most obvious. It is the most simple because you can negotiate the price that they want at the interest rates that work with you. The rules around this: you need cash flow. Income minus expenses equal cash flow. So make sure that you get a low enough interest rate so that they get the price that you want and you get to retain an optimal amount of cash flow to operate your property and pay yourself a little extra. If you can do this again and again on every single deal, Congratulations, you make money on every single deal. It's that simple. Now there's some other methods that go into this. For example, you don't have any money, you just negotiated 10% down, like I just mentioned. So you finance 90%. Where does that other 10% come from? Well, if you're going through a conventional lender, again, the rates are fixed. But if you're bringing in capital partners, an equity partner, the splits are completely negotiable. Who gets how much of what? Are you paying them a fixed payment every month? Are you guys just splitting cash flow? Equity could have— I mean, it could be completely free to you if you have a low cash flow deal and you structured all around a future buyout of that equity partner where they have participation in your deal. They probably have some tax benefits in your deal, but their main compensation is going to be the future buyout when you increase the value of the property. Now you essentially have arbitrage time and you have free money for the duration of your partnership. Now, another way you can do it is you can borrow money from a private individual. Those are also completely negotiable. Now, traditionally, right now, if you go to a hard money lender, money is like 12 to 14%. It's gotten more expensive as interest rates have gone up conventionally. That being said, if you go to private individuals, which is typically where those private money lenders are getting money from anyway, if you meet individuals in your market who happen to have some money, you can negotiate terms that make sense to them. That could be a specific interest rate. Say your deal works. If your seller financing is at 4% and that last 10% is 8% debt, you find an individual who would love to place money for 8%. You can do it as debt. The last thing that you can do on those capital partners, either as a debt partner or an equity partner, is you can blend the two. You can give fixed minimum payments or what we call preferred returns of, hey, you get the first 8% and we'll split everything past that. Now it works a little bit more similarly to a note, but there's an equity buyout in the future. And then you might get a cheaper buyout in the future because you shared the cash flow throughout. But that's all you're doing is you're just negotiating the pieces. And the common thread is it's with individuals. It's all about, as always, the relationships that you have. If you have a seller who trusts you, who's invested in having you win, if that other owner wants you to be successful, they can give you terms to set you up for success. Especially if they don't want to take back the property, that happens to us all the time. They are vested in your success. Sellers love it. When an investor comes in, especially when they have an equity stake in the deal, they're highly invested in your success, they want you to win. So you need to put together a plan that says, hey, at this debt product, I can service the debt on this property, we can run this responsibly and get you the return that you deserve on the opportunity. The more stable the opportunity, the easier it is to get cheaper debt. If you have a really high-risk deal, just know your costs are typically going to go up. So you need to factor for what is it you're trying to do and how much upside do you really conservatively have. That's it. If you can do these things with the seller and with private individuals, you get to choose what you pay for an interest rate because you get exactly what you negotiate. Last reminder, this is a debt product. You create that debt product. Long-term is everything. A 3-year debt product is not worth as much as a 15-year debt product if you have an awesome debt product. So get that negotiation and then really focus on pushing that term out as far as you can. Balloons are not something that you want to go pop. And that's what we have for today. If you appreciated this video or you want to apply this information, let us know how you're applying it in the comments. Then like, subscribe, and we'll see you next week.
