Christian Osgood and Cody explain why seller financing benefits both sides. A Seattle seller kept a 3% note to avoid capital gains taxes instead of taking cash. Success means discovering what the seller actually wants, then structuring the deal around their goals.
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We keep getting this garbage comment that seller financing is only good for the buyer, that it's one-sided, and that we're taking advantage of people. We're going to address that today in our video.
Welcome back to the channel. My name is Cody, this is Christian, and we're talking about how seller financing is advantageous to property owners when they're trying to sell.
Yep. Now, if you are trying to put together seller financing, you're typically working with someone who has a very high equity position in the property. Most often they've paid it off completely. You're not usually working with a novice. You're not usually working with a distressed seller. So your ability to try to take advantage of someone is usually somewhat limited because you're usually playing with someone who has mastered the game. If they are going to carry a contract with you, that is a choice they make, and they very typically have a very specific reason that they would do so.
If they're going to work with you and actually finance the purchase, there's going to be some level of trust, but there's also more importantly going to be an alignment of goals. And not everybody's goal is to hold property forever, and not everyone's goal is to get a whole bunch of cash when they sell their property. Some people just want income.
In fact, a lot of people, and I've seen this more and more recently, do not want the lump sum of cash for capital gains reasons. In fact, we're looking at offloading one property only because it's in Seattle. We still don't advocate for selling, but we are looking at offloading a property where the current note holder actually reached out and said, is there any way that I can transfer my note to the next party because I still don't want to be paid off. What's crazy is this note is at 3% interest. They don't want the capital gains tax so badly that they would rather hold a note at 3%. Are we taking advantage of someone by having an amazing debt product? No, that's what they want to do.
That's what they proposed, which is beautiful. And we gave them their price, which was probably a little more than it was worth.
I think so. However, at 3% debt over a fairly long period of time, I absolutely love that deal. Cash flows amazingly. I only don't like it because I don't like owning in Seattle. We'll save that for another video. The actual deal there is you find what someone else wants. It's about the objectives aligning. When we're looking for a deal, we're looking for cash flow and equity growth. We're going to write something on our end that hits those targets. On the other party, you just need to know what it is they're trying to do. If they're trying to unwind a property and don't want capital gains, super easy. If they want to earn some interest on their money and know that if they place it in a bank, it's going to be like 0.05% interest, it's literally nothing. Placing money at 3, 4, 5, 6% could make all the sense in the world to their financial position. I think it's quite honestly, the word is stupid, but it's stupid to assume that, oh, you have to— if you get a good deal, someone else doesn't get a good deal. If it's seller financing, they're making a decision to give you a debt product and to continue to have a stake in that property, because typically that property is going to be the collateral. It has to be mutually beneficial, otherwise that deal is not going to happen. They can just say no.
And there are winners and losers in business, but to the extent that you can make everybody a winner, you'll get to be able to do repeat business. And that is the key to our strategy. We do good deals that hit everybody's objectives.
And we have multiple people who we've bought multiple properties from. I can think of 3 groups right off the top of my head that we've done multiple transactions with. We do this in every single market. If you take advantage of someone on a deal and they feel that they did not get a fair shake, that relationship is now dead and you're stuck with an adversarial relationship with the person who is a lender to you. Granted, the contract is what protects you, but I do not want my lenders coming after me because they're unhappy about some arbitrary thing. I want it to be mutually beneficial because that makes for a great partnership, because your debt partners are a type of partner.
Now, one other goal that we've heard a lot from property owners when they're selling out of their real estate is they want to pass a note to their kids. And we found that to be consistently true, especially for the folks who are getting a little bit older in age. They'd rather pass on an accounts receivable. The kid could blow all the cash if they inherited a bunch of cash.
And statistically they will.
Yeah. And they could also soil the property. They don't know how to manage the property more often than not. But if they get a note where they get paid every single month on the 1st or the 15th, whenever it's in the note, they can blow it and they'll get it again next month. That is a huge benefit that they get to provide security for their family. So make sure as you're building out your business, you recognize that there's pros and cons and there's A lot more pros for sellers, just like there are for buyers, than you might think.
Yeah. Now when you're negotiating this, it's important. Like we just listed a few reasons, right? You have tax benefits, the interest rate, passing a note onto your family. There's more reasons, but when you're doing this, do not sell them on that idea. Their reason's personal. Your goal is to have them tell you what it is that they're trying to do. Just learn their goal and make sure that you craft it to that. If their goal is tax protection, okay, we want to spread this out. They should probably talk to their CPA and you use that as the negotiation for what the term needs to be. If they're trying to pass it on to their kids. Same exact thing, but you're framing a story, and it's a true story of this is what they're trying to do, and this is what I'm trying to do. And the deal that is written specifically for those goals is going to be the right deal for that. So the goal is to actually take the end— what do we want to create?— and let's reverse engineer it. And that is what your contract looks like, and that is where you have a win-win situation every single time you close a seller finance deal.
And that is how you play this game. If you'd like to do a deeper dive on that, make sure to hit the link down below because that'll show you in 10 minutes how to do what we do when you're meeting up with these owners. Also hit the subscribe button and we'll see you next week.
