Christian Osgood and Cody break down seller financing deals by starting with price, then structuring the four negotiables: interest rate, loan term, balloon timing, and special clauses. They walk through a 38‑plex example where a six‑month reduced‑payment period let buyers stabilize the property, and stress getting everything in writing with a promissory note and deed of trust.
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Instead of asking what price would make this deal work, we can go, at this price, how would this work? Today we're going to be talking about our step-by-step guide to putting together your seller finance deal, what pieces we use to negotiate absolutely anything that you want to buy.
Welcome back to the channel. My name is Cody. I'm here today with my business partner Christian, and we're talking about seller financing, specifically the step-by-step guide that you need to really understand what it takes when you're making these offers. Because there's a few components. Speaking of components, what's really the starting point for this?
Well, the first thing, and this is on every deal, but the first thing you have to negotiate is price. Pretty obvious, right? If you're going to buy something, there in fact has to be a price on it. Now this is for conventional or creative, but the first thing you start at is usually what are we buying this for? The cool thing as we start to get creative is price is one of many terms. If we were going through a bank, you're going to be looking at, okay, what is the price? And they're going to tell you, this is what we can do.
Yep, this is appraisal.
Yep, you might have one or two options for a balloon payment. We're going to tell you what the interest rate is. There's no room for creativity. We're just going to knock it out and we're done. So price, if you're doing a traditional deal, that is the only thing that you get to negotiate. How much do we buy it for? Now, when we get really creative, what are the other three main components that we get to negotiate on seller finance?
Well, you mentioned interest rate. Yeah, I can't go to the bank and ask for 2% right now. They're probably not going to give that to me. I might be able to give them money and they'll give me 2% on the CD, but they're not going to lend it out at 2%. So when it comes to doing a seller finance deal, you make your offer and then eventually you have a promissory note and a deed of trust. I get to name the interest rate as long as the seller okays it. Attorney drafts it up and we're good. You can't do that with a bank. You get to name your price and you get to negotiate your interest rate. What else can we negotiate?
Well, we do buy and hold real estate, so everything is about how do we never lose it. How do we buy it? Well, price, interest, we figure out the actual deal, right?
We're going over that today.
Yeah. How do we never lose it? You have to make sure that you have a long enough term on this. Some deals are fantastic, but they're not going to work on a 3-year term.
So what's that mean? 3-year term?
So the term is the length of the loan. Now, if you're buying a house or even up to a fourplex, yeah, you're going to have a term that is typically going to be 30 years and fully amortized, which means it's going to pay itself off all the way in even payments from day 1 to the end of 30 years. Now, if you're doing something creative, you're making up the interest rate, you make up the principal payment in that too. It could be interest only, it could be whatever on the rate.
Yeah.
When we're talking term, you have what's called a balloon.
Balloons go pop.
Yep, they do go pop. And if you're not where you need to be on year 3 and your balloon pops, you lose your deal. So you have to negotiate enough time. Now on a commercial deal, if you go to a bank, standard practice is you're going to have, let's say, 3, 5, and 10 years are probably the most common balloons that you have in that realm. On this, you get to decide how long do I need to do what I want to do on the property, and you negotiate it. It's completely custom, and it answers the question, how do we never lose it? If I know I need, let's say, 7.5 years, you can be as specific as you want. To finish my project, maybe I'm building something on the back of it, I need to lease the whole thing and optimize it. That is enough window where I absolutely know I can refinance the property and I'm not gonna lose it. I can do that in the negotiation phase.
Now some people on the internet like to focus on these things called special clauses. Now what are some special clauses? 'Cause I wanna chat about that right now as just that next segue into the creative finance seller finance step-by-step things that you can negotiate. What did we do on the 38-plex for the first 6 months that allowed us to really get into it and not lose it?
Oh, special clauses are awesome, and that is a great deal example. So on the 38-plex, what we did is it did not make enough money to service the debt as it was written, and we were still borrowing at low interest. Was it 4%?
4% interest, which is fantastic.
However, the property was a turd. It was a huge value-add project. So what did we do? We negotiated for several months as we're starting at 6, right?
We had 6 months and our total payment was $7,000 a month. After 6 months it went up to what it should have been, which was $10,000 a month. And so we got $3,000 a month in savings for the first half year, which gave us time to get into the asset. You can't do this with a bank, by the way. You can't just negotiate whatever the heck you want. We went in and negotiated lower payment terms for 6 whole months, which gave us time to stabilize the asset.
Now, we've had Caleb and Chuck on this channel a few times. For another piece of practical application on this, they've actually negotiated no payments for 6 months. They did that on their first 2 deals, I believe. They had an extended period of time where they're like, look, we need to raise rents and we need to have some capital reserves. Unfortunately, we don't have any money at all. So if you have no money, we have to cash flow it. We want to absolutely save every penny as a capital reserve, have time to raise the rents, and that way we can service the debt when it starts in 6 months. Special clauses are really fun because they're exactly what they sound like. They're special clauses. Anything that you can make up that the seller agrees on and both parties' lawyers— that's very, very important—
they get into writing. Yes, that's the big one. If you can get it into writing, then make it happen. As long as you conform to all the laws and your attorneys are the ones who are really making sure that works, then it's off to the races.
By the way, if you have questions on these special clauses or any of the craziness in this—
Whiteboard Wednesday.
Yeah, join us 3 PM Pacific Standard Time every single Wednesday. You can come and ask your questions in the chat. We'd love to see you there, but we can go in-depth as much as you want there.
So now that we've gone through those things, we're going to talk about why this thing is fun, why we love playing the creative finance game. But before we do that, I want to talk about once you have all this outlined, because fun's great, but you got to make sure you understand what you're doing. You have an idea, you find a way to make the numbers work, you figure out a special clause or two to make the deal work for you because your situation is different than ours, it's different than everybody's. You have your real estate agent or your attorney draft up the offer. If that gets sent out and then gets accepted, you go under mutual acceptance. You get under contract on the real estate. Some people have some ambiguity of that. Your agent or your attorney will draft it up, draft up the offer. If the other party signs it, then you're under contract. You do your feasibility, you get through title, you get through all your inspections, and then your attorney will draft up what's called a promissory note and a deed of trust. And those will be the instruments that allow you to actually do the Seller financing. We've had a lot of people DM us, can you send us your seller finance contract?
No.
It doesn't say seller finance contract on the top of it. It's a prom note, which is really just a promise to pay. I promise to pay the seller X amount every month until they're paid off. But a promise is only as good as what backs it. So in our case, for most of our deals, we have a deed of trust, which allows them to put a lien against title. It's just that simple. Now why is seller financing fun?
So seller financing is super unique because we're not just negotiating on price. Price is one thing. You have to do that in conventional. You have to get that number. We can do anything we need to make the deal happen. So for example, if a seller wants to sell their property for more than it's worth, but we can absolutely cash flow it and answer the questions, how do we buy it? How do we never lose it in long-term cash flowing fixed rate debt? Well, we get to change all these other inputs. Does this work better at interest only? Can we lower the payment and go, okay, well, It doesn't work in the bank's 6% interest, but I can give you your price if you give us 3% interest only. And we've done stuff like that before. We have 3% interest debt because that's the only way a property made sense for us. The special clauses, like we mentioned earlier, that allowed us to survive a property that needed, really just needed help with the collections. There's a bunch of non-pays. Give us time to post notices, meet with the tenants, come up with a payment plan, and get it on track so that by the time it went to our full payment, we can actually make it. But it's all about getting creative with— instead of asking what price would make this deal work, we can go, at this price, how would this work? Completely different way of thinking to take out real estate.
Now that's really it for the seller finance step-by-step. You figure out these pieces, you figure out how each of these work together, and then you get your offer accepted, you have the attorney draft up the docs, everybody's good, it goes to the title company, and boom! You're all set to go. That's it for today's video.
