The Difference Between Winning or Losing a Seller Financed Offer

All right, hello and welcome back to Multifamily Strategy Live. Uh, today I'm actually doing a follow-up on last week's YouTube video. So if you haven't seen the video from actually from earlier this week, um, I go over 4 different scenarios of where seller financing actually gets accepted, how to craft your offers. After coaching on this more this week and bringing it up in our mentorship group, I actually have a way to simplify this even more that I wanted to share with everyone here. Then of course I'll always answer your questions here live on the channel. So if you have questions feel free to post here in the comments section, either on YouTube or on any of the platforms that we kick out to, which are pretty much all of them. So wherever you're watching, feel free to ask questions as we go. But seller financing— this is ultimately the difference. When I discovered this, I bought a lot more real estate. I've never been able to simplify it as much as I am right now though. If you want to get your offer accepted, you need to be able to answer this question. Am I solving a them problem or a me problem? Most people in seller financing, especially when they come to me, they're like, hey, I don't have the money to structure this deal, or the deal looks better with different terms. I'm going to see if we can get creative finance because I think I need creative finance to close this deal. First of all, creative finance is a tool. It's used in many transactions. In fact, more than half of my transactions have been seller financed. 100% of the deals I've closed so far this year, almost 100 units, have all been seller financed. So seller financing absolutely is a fantastic option. However, look at the framing of that. I believe that I will need a seller finance transaction. I believe I will need— what you need is not important to the seller. It really isn't. They don't really care. They have their list of needs. Now, if you can frame what you need in the context of what they need you will get your offer accepted. So for example, let's say they're not necessarily open to creative finance. You're going to try to sell them on the idea. So they haven't proposed it. We don't really know if they're open or closed in this scenario, but let's assume we have no idea, hasn't been brought up. If you bring up seller financing as, hey, for me to close this deal, this would be very helpful for me, they don't care, or I don't think the bank is going to want to lend on this, I'll be able to raise this a lot easier or on better terms if we do seller financing. You problem. How do you make that a them problem? I would actually underwrite the deal. Let's say they want $2 million and a bank would likely evaluate the deal at around $1.6 million as an ideal price. They want too much money. Instead of coming in with a like, hey, a creative offer might allow me to make this deal work. The way to shift it to a them problem is offer them where the bank works and say, hey, I evaluated this with the bank. And we believe that we can come in at $1.6 million. If they come back and say— now, first of all, they might say yes, so you could just win on price, which is better anyway. If they say no and they go, hey, we're too far off on price, now you're solving their problem. Initially, they've listed a property, they're looking for a specific price. You've come in, you've given them an offer and a valid reason why your offer is what your offer is. Now they have the problem of they have to justify why they're selling the property at this price They're now stuck. Now it's appropriate to suggest to them a solution of like, hey, if you say they reject your offer, you come back to them. Okay, here's my reasoning. Bank is going to look at this at around a 75% loan-to-value and at least a 1.25 debt service coverage ratio. Today, the property performance does not support those numbers. So I'm just looking at this as what's likely to get financing. And I do think every other buyer is going to run into the same problem. I had an idea that might work if we seller finance. That can probably come up to $1,850,000, so I get a lot closer on price. Here's what I think the terms would look like. As opposed to starting with, hey, you want $2 million, I think I can come kind of close to that, but we need to do seller financing— solving a you problem— you actually frame it in a way by writing an initial offer that is either accepted conventionally, so you're just playing the game, Or it's rejected, and now you can solve that rejection through creative finance. Again, it's the same thing. Your position has never changed in here. Your framing of it— you are now solving a you or a them problem, not a problem for yourself. It's a simple example, but the difference is really important. So every time you're about to submit the offer, are you fixing a problem that is primarily yours or currently their problem? They're married to their price. Establish that. Try to negotiate on the price first. If they reject the offer, now you can go in. Another thing that happens a lot with this, and this has happened to me several times, I expect to go into the creative finance negotiations and they accept the original offer as is. I actually did this. They listed for $2 million. I offered them $1.6 million expecting to have this exact same back and forth on a 25-unit in Stephenville, Texas. I was prepared to propose seller financing. I had a price in mind. It happened to be $1,850,000. They countered with no counter, actually. They just accepted it. They just said, yeah, we can do $1,600,000. That'll work. So first thing I learned, I probably could have gone even lower and still got it accepted. But more importantly, I saved $400,000 of price and we won. The bank financing was super easy. They gave us 80% loan to value. That property remains in my portfolio today as one of my starting pieces to my Stephenville portfolio. So your worst case scenario in doing this model, if you're trying to get creative financing, you might just get an amazing price and close it conventionally. In the event that they get back, now you're solving a problem because you've established this is what they're trying to do. The other advantage to this model of like, hey, let's try to solve it conventionally first, and when it doesn't work, or if it doesn't work, switch to creative. Not only is it solutions-based, you're establishing yourself as a ready, able, and willing buyer. You're not making it like, hey, I don't have the cash, I don't have the funds, I don't have the experience, I don't have the credit. Any of the problems that you're running into, you're trying to solve with creative finance. It's simply, it's on the bank and say, it's you and me, seller, it's you and me against the bank. We're going to try to figure out a way to close this deal where we're both happy. If you don't do that initial offer, you're indicating to the seller, hey, I don't know how to close this if we don't get creative finance. This is the only way to do this. I'm only a buyer at these terms. And all those things basically show, at least if you're trying to give the same offer to me, is indicating you have low capital, you have low confidence in your ability to sell this to a bank. I'm worried about you refinancing the property. I'm worried about your cash to close. As a seller, I'm going to ask for way more down. I'm going to ask for proof of funds because I'm not confident that you're going to close. However, if you give me a solid conventional offer, even if it's lower I reject it. Now I'm more open to negotiating because now we're in the back and forth and you're not just trying to lowball or circumvent the bank. We're going, hey, conventional might not actually work. Let's get into the creative. So ultimately, I gave 4 examples in my last video, but what it comes down to today, it's about framing. If you are selling, because you're pitching is what you're doing when you're submitting an offer, If your pitch solves their problems or makes sense as a logical flow of the negotiation, you're solving a problem for them to get to an outcome where everyone wins. It will likely get accepted, or at least a version of it. You're in negotiation. If you open with creative finance when they did not bring it up, 1 out of 100 might get accepted. So if you happen to be someone who's getting stuck on this, you're like, man, every time I pitch this, Um, ridiculously high down payments, high interest rates, proof of funds, all these hurdles come up of like why the seller is not doing seller finance or not on your terms. You're probably attempting to solve a something that you lack to close the deal, not something that really directly affects the seller. They would rather just wait for a more experienced or wealthier investor to come along and close it conventionally. If you can prove that that is not the model, I've always found just submitting an offer, don't start or open with creative finance. It is the equivalent of putting a sticker on your head that says, hello, I'm broke and I don't quite know what I'm doing. If you use it tactfully as a tool in your negotiation, you'll actually find that you get this very, very often. Uh, I've to date done 32 multifamily transactions. 13 of those have gone full cycle, which means either a sale or refinance. So about half my deals, I've actually completely finished the project and swapped debt products, or we call that a full cycle deal. 17 or 18 of these transactions have been seller financed. Some of them have a blend of seller financing and conventional. Some of them are just straight up seller finance. Some of my deals have been 100% or more seller financed. Uh, so I just wanted— why would you listen to me? Because I've done this a ton of times, but more importantly, a lot of my students have run into these same hurdles. And at the end of the day, we can Always put it into the box. Were you solving a seller problem or were you solving a personal problem? Sellers will not care about your personal problems. Do not use your limitations to sell on seller financing, and don't try to manufacture the problem for them. Oh, you're going to save on taxes, you're going to save— wait till there's a real obstacle and use it as a negotiation. Only exception to this is when they start by listing it as seller financeable or they bring up creative finance themselves. Other than that, Don't open the creative finance box until you've made an honest attempt conventionally. You'll seem way more credible and you'll actually be given the hurdles that they want to overcome. So they'll actually give you what you need to do to structure the deal when they counter your offer. A few questions here in the chat, so we'll dive right on in. Throwing up on the screen, looking at Tampa Bay market around St. Pete, Clearwater, etc., not seeing much, uh, rent growth. In fact, uh, new construction offering 2 months free concessions all over. So we're seeing an interesting— this is actually a fantastic example. Tampa Bay is one of several markets in Florida where they have actually overbuilt. Even with all the people moving in, they're still having an absorption issue. There's so much development. We saw this recently in Dallas, Texas, Austin, Texas, especially Austin, and to a lesser extent in Houston, Texas. A lot of Texas markets built, built, built, built, built, built, built, and the big wave of people slowed down. Still high population growth, but they overshot the demand. We're starting to see that throughout different markets in Florida. We're actually seeing rent come down just a little bit and probably will through this year. It will make Florida a little bit less, uh, competitive because of the, the absorption. People are going to start looking at other markets. Um, I actually like this as an investor. It means opportunity is usually about a year away from really opening up. Um, but when you start seeing this where it's like, hey, stuff's not leasing up, there's concessions everywhere, you really want to be careful, especially if you're buying older inventory. So let's say like a 1980s building. If there are new builds right next to you that offer all the amenities and they're giving away 2 months of free rent, that's your direct competition. You have to ask yourself, why would my tenants not just leave and go here if they spend about the same amount of money but just get a newer building with more So you do actually have to keep a very close eye on this. However, this should follow a lot of the trends that we saw in the Texas market. They overbuild, rents will come down a little bit, the market cools off a little bit, but it's still a high population growth area. A great deal in Tampa, St. Pete, Clearwater is going to continue to be a great deal just by based off of cash flow. The appreciation might stall a little bit for the next 1 to 2 years. It's still geared to absolutely take off again. They just overshot their development cycle, which is extremely common. It always happens. It will slow down building. You get too much demand, not enough supply. There's a balance, and then the builders made a whole bunch of money fixing the problem. They overbuild and they overshoot the market. This is a normal development cycle though. You are seeing that through multiple markets in Florida, not, not limited to, but including Tampa. Oscar, not tech savvy yet. Fortunately, Claude AI will solve most tech savvy things for you now because it knows, it knows pretty much all. Um, can you show us on screen how to use AI to determine what price and interest rates you need to invest in an asset at a 1.3 DSCR? Um, my screen share is super wonky on StreamYard specifically. I'll explain it exactly though. It's very, very easy to do. You're gonna go into ChatGPT, or you can use our custom Osgood, uh, GPT, which is available on, uh, Skool. S-K-O-O-L. You guys can check that out, um, for free. Um, I think— I don't think there's a paywall between the GPT. Someone fact-check me on that. But you go to Skool, S-K-O-O-L.com. You can use our custom GPT or just go into ChatGPT. What you're going to actually prompt it though is gonna be super simple. So you put together, basically it needs the NOI to know what the debt service coverage ratio is. So the NOI and the desired debt. So you're gonna lay out the scenario for it. I like to take an actual offering memorandum or a P&L. You can just download it directly into ChatGPT as long as you're, I think it's a $20 a month subscription to ChatGPT where you can do like unlimited of these. Upload the data, the base data and say, hey, at what price would I need to buy this deal for it to equal a 1.3 DSCR or better? It'll actually go through and do all the assumptions. It may ask you a couple questions such as, well, what loan to value are you planning on purchasing at? Let's assume 75% loan to value. And if you don't even know what the market rates are, just ask AI. Say, assume standard commercial bank loan at 75% loan-to-value for this property? At what price would I need to purchase this property for this deal to have a starting point of a 1.3 DSCR or greater? And it will literally just calculate it out for you. I actually do have some videos if you go to my channel and search AI. I actually do have some exact examples of how I prompt. I— they're on my YouTube channel, but look for the ones that actually mention prompting. Um, I do share a bunch of my prompts on Multifamily Strategy. On YouTube. And it's where I'm actually like sitting at a computer right now. My keyboard is, is over there and screen share will mess up my whole setup. Uh, but it's like me sitting at a computer sharing my screen, going through those exact prompts. Does it make sense to use T12 income and acquisition year 1 expenses to get a realistic NOI, not pro forma projections? Uh, yes, I don't want pro forma, especially not from the listing broker, right? They have an obligation to their client to present the deal in the best possible light, which means they're trying to sell you on this and they get paid if you buy it. They, they have a conflicting interest. Uh, they get paid whether or not the deal is a good deal or any of their predictions actually come true. So there's low incentive for an accurate pro forma from the broker. Now you should create your own pro forma, uh, conservatively of where your deal is heading. But really all decisions for real estate come down to two documents. Your day one analysis of the deal. What is our starting point and does it cash flow? Can we buy it and hold it and get paid to hold it? And then where do we conservatively think the deal is going to end up? There's only two types of money in real estate. There's cash flow and there's equity. So between the increase in value between A and B, so let's say we can, we create $200,000 of new net worth on this million dollar acquisition. So there's $200,000 here and it will cash flow $25,000 a year on average. Made up numbers. Let's just say that's our deal. So on a 4-year hold, we have $200,000 of equity and we'll cash flow about $100,000. There's $300,000 in the deal. If you're raising capital, how much do you have to pay investors? Well, it's going to be 75% loan to value is your likely cash-out refi. So how much cash can we pull out If we increase the value to $1.2 million plus our total cash flow, that's our total pool of money. That's, that's as simple as all real estate is. Day one math, future math, how much cash flow and how much money can we pull out of the upside of the property? That combined amount is how much you have to pay yourself and pay your investors in that period. That's, that's all of real estate math summed up as simply as possible, which is really right on theme with today's topic, which is When you win seller finance deals, it has to fall into two camps. It's either a you problem or them problem. If you're trying to raise capital, you can only pay them out of two types of money, cash flow and equity. What is your total pool of money? How to reward your investors? A lot of real estate gets summarized right there. Troy, highly recommend anyone considering investing in real estate join MFS. Oh, okay. I did not prompt Troy to say this. He is a member of our Multifamily Strategy Program, but you guys can check out school for free. Get plugged in on the, like, actual community resources. Tons of people do deals on there. I have free calculators. So dip your toe in, you know, watch the YouTube channel, check out the school. And if you guys are looking for direct mentorship, it's something we'll ever sell. This is really important to me, actually. The mentorship— I coach 3 times a week, and I will take a ton of one-on-one calls. So I get emails all the time, calls all the time. I've done a ton of one-on-ones with mentees today specifically. So when you join Multifamily Strategy, it is actually me giving you a ton of time, ton of resources. It's a mentorship. If you want information, information is free. It is on YouTube, is on AI. In fact, my theory, I believe that all courses from all online gurus will be— I think the era of the like, hey, I did something cool, I put a $500 course on it, buy this course, I think that is dead. I think AI has already killed it. I think by the end of the year there'll be none left. The only thing that has any value and the only thing that costs me time is actually personally mentoring me. So if you specifically want a mentor and a community and a process to go through, check out Multifamily Strategy. If you're just after information, like and subscribe to this channel, join our free school community. I have a ton of free stuff for you that I'd also love to include you in. A lot of people have just joined the free community And they've done multiple real estate transactions. Absolutely could be you. And thank you, Joy. I appreciate the, the, uh, I appreciate the endorsement. This was an unpaid ad. And I see no more questions here. Let me quickly check the Instagram. And if we see nothing over there, then I think we can go ahead and officially call this a live. I hope this was extremely helpful though, because if you can distill down your seller finance offers to me problem or them problem. You solve a lot of things. It looks like we have answered the questions officially. So guys, thank you for joining us today on our relatively short live. I hope this was incredibly valuable. I'll see you guys next Wednesday and see you all on the next episode.