How to Negotiate the Perfect Seller Financed Deals

If you're struggling to find a multifamily deal, if you're struggling on finding the financing, if you want to buy larger deals than the amount of money you have, but you're not finding seller finance deals for less than 50% down, you may be going at this the wrong way. I'm going to share some practical tips to find deals and how to structure the perfect seller finance deal. Welcome back to the channel. My name's Christian Osgood. I'm your channel host. If you haven't yet, like and subscribe. If you want to join our free school community, it's completely free. There's a link below. There are thousands of people there who are structuring deals exactly like like this. So the first thing you can do if you want to find deals is go ahead and join the Free School community. After that, let's get rolling on how we play the seller finance game. First and most important thing, I'm going to drop this right on the front end. The perfect creative finance deal is the least creative way to get to day one cash flow and answer the two underwriting questions that we answer for every single deal. How do I own it? And how do I never lose it? Which sounds an awful lot like buy and hold. Why? Because that's the strategy you want to go for. Now, if you can both acquire the property with or without money and you can hold it indefinitely, what you have done on a deal that cash flows day one is you've increased your income for the rest of your life, possibly the rest of your children and their children's life, depending on how long you can convince them all to hold the darn building. So what are the rules of the game? First, as I already mentioned, day one cash flow. If you want to increase your income every single time you close a deal, it needs to make positive income. Every single time you close a transaction. Very simple equation for this: income, total income minus all expenses. If you have money left over at the end of the month, that is positive cash flow. You want to see a positive return on investment. Now there's a lot of people who have specific metrics around these. I don't actually care. See, we actually fall into a square here. There's an actual box that you create with your day one numbers. And your future numbers. Most seller finance notes are going to have a balloon. So even if you have an amortized schedule, usually in 5, 10, 15 years, the note is going to come due. So we do two pieces of math. What is the cash flow at the beginning of this transaction? What is the cash flow projected to be conservatively at the end? It's top of our box. On the bottom of the box, what is it worth today? Deals have a specific cap rate, a specific valuation based on how they're performing in your market. Simply find what is it worth based on its current performance, its net operating income today, and where do we anticipate in the future conservatively that deal will be. Now we've mapped out, okay, here's our actual opportunity. Here's today's cash flow. Here's future cash flow. Here's Today's value. Here's the future value. Now, before we move on to the final step of mapping out inside that box, we're first going to select a debt product. Now, for seller financing, the perfect seller finance deal, you have answered everything that the seller wants and everything that you need. I'm going to use an example. This is one of the first deals I ever did. 38 units, Moses Lake, Washington. I'd never raised capital before. I'd never done seller finance before. This is the first time I did it. The seller wanted $10,000 a month. The property made $7,000 a month. So we couldn't even cover our operating bills and pay the mortgage and cash flow. You couldn't even come close, but I need day one cash flow and a plan to both buy and never lose the property, which means I need to maintain cash flow in perpetuity. For the owner, they're willing to do a long-term note. They're willing to do 4%. So we had great interest rate, but they needed this high, high, high payment that we couldn't afford. What is the simplest way to get there? Well, the maximum that we were able to do was 15% down on a $2 million purchase. I'll get to how we raised that on the back end of this video. For the debt product, all we did was take a whiteboard and we wrote out both sides. Seller needs $10,000 a month, $300,000 down, $2 million purchase price. These are the fixed points that they must have. On my end, I need to have day one cash flow, long-term cash flowing fixed rate debt in perpetuity on the loan. How can you have both things if they want a higher payment than the cash flow and I need cash flow? Well, the simplest answer is the right answer. There are no mortgage payments for the first 6 months while we increase the income on the property. And after we fix all the problems with the property, we fix their collections issue. Now we can easily pay a $10,000 mortgage. And at 4% interest, we actually pay down that loan very, very quickly. It's called a custom amortization. We simply just add principal payments till they get to $10,000 a month. That's not all that creative. You're like, hey, the deal will cash flow a lot. It doesn't today. I need it to cash flow day one. We will give you everything you want. We'll give you your price. We'll give you your down payment. We'll give you your monthly payments. You just have to wait 6 months for the payments part. To kick in. You get everything that you wanted. I get everything I wanted. We went ahead and closed that deal. We did many other deals with similar structures, but that is the key to creative finance. That's the perfect creative deal. Do I have day one cash flow? Can I keep it forever? Have I increased my income for life? And has the seller walked away with literally everything that they ever wanted out of their deal? For context, this deal was on market for 12 years. They have been waiting and waiting and waiting. I gave them 2 of the 3 things they wanted immediately and a 6-month timeline to kick in for the last piece they've been waiting years and years and years for. They were able to retire on this deal. Home run for them. Home run for me. Later on, we actually did a cash-out refi. We have pulled $1 million cash out of this property from one transaction. And then remember, I've done like 30 transactions. This is how you negotiate a seller finance deal. It is not about putting together the lowest interest rate, the perfect deal, chasing the low down. It's understanding what do they need and what do you need to close the deal. And my argument to you, just get long-term cash-flowing fixed-rate debt on every single deal and as long of a term as you can possibly negotiate. I realize I still left a mystery in there. I didn't have $300,000. Where did the $300,000 come from? That's still a big down payment. Now, 15% down is relatively low down, but where does the money come from? Well, because we'd already negotiated the deal and we'd already set up our custom debt product and we had a business plan from how we're going to get from A to B, we now have a package that we can present to other people who are interested in also making money in real estate. The $300,000, since I'd never raised capital before, came from 3 people I'd never met before in my life. I talked to maybe 5 people who were in real estate. One of them was a broker who worked down the street from me. He had small multifamily clients. We're talking duplexes, triplexes, fourplexes, residential multifamily. I simply asked, do you have any investors who are trying to buy bigger deals but don't have any opportunities? Since he doesn't represent those properties, I'm not competing with him, but if he has people who want to deploy money there, maybe they would be willing to partner with me. Turns out he gave me 4 names. 3 of them wanted to put in $100,000. I'm not super good at math, but if you're trying to raise $300,000 and you have 3 people who have $100,000, in 24 hours we did an entire capital raise in my 20s with no experience. There's no credit checks. We simply Did the deal, found the debt. There was a little bit of money left over after the debt. We put together the equity at refinance. I bought them all out of the property for $600,000. So they all doubled their money. There was $400,000 left over. I got paid $400,000 on a $0 investment out of pocket. The seller walked away with everything they ever dreamed of. I got income and cash, and all of the investors in the deal doubled their money., and it was in no way a home run deal. It was a home run structure, and that is the perfect seller finance deal. Now let's get back to that square I mentioned. So we have our day one cash flow, which is enough to pay our soon-to-be mortgage. We get the rents up, but we're trying to make a $10,000 a month payment. So while the future cash flow is gonna be much higher, we are eating a lot of it in this deal with principal paydown. So when we're raising capital for people, we need to fit to the final money. The equity into the box of day one cash flow, future cash flow, day one equity, future equity. So day one cash flow, lower than we need, but we have lower payments to compensate. Future cash flow, more than enough to pay ourselves, pay the mortgage, not enough to raise additional debt or make distributions out of cash flow to investors. So how do we compensate? Well, we bought it for $2 million. This is 38 units in a market of Washington State where at the time Apartments that are similar quality when they are stable usually appraise at about $100,000 per door or $3.8 million. So what do we do? We increase the project over time. We eventually did get an appraisal for a little over $4 million, which means we doubled the value. So the cash flow side of the equation, too low at the beginning to share, and we want to keep the cash flow on the high end. So there's not enough cash flow, the top end of the box. Our day 1 value is about where we bought it. Our future value, there's a lot of upside, which means we incentivized on this quadrant of our box. We said, hey, we will double your money in 5 years or less. And guess what we ended up doing? Just after year 1, we bought everyone out for double their money. Fantastic return, but we tailored it to the deal. The deal will tell you where the money's coming from. We negotiate the deal. Then the debt. The debt told me where we're going to be on the cash flow. Since that didn't answer where the money's coming from, we moved down to the equity and we went, hey, we have a big increase of value. We're actually getting a great price. Let's incentivize the investors there. You will always fall within this box. And if it doesn't work on the cash flow side or the future equity, guess what? You don't have a deal yet. Get back to negotiating. Hope this was helpful. If you have any questions, let me know below in the comments. We talk creative finance all the time. I'm going to have a whole lot more in this series. But today's video focuses specifically on seller financing, how to negotiate. See you on the next episode.