The Fastest Way to Seller Financing Success

Why is seller financing so difficult yet still so simple? Why do we overcomplicate it? What is the easiest way to actually get your deal accepted if you want to use seller financing? Why do you even need to know this? Hey, my name is Christian Osgood. I have tens of millions of dollars of seller finance debt in which I've purchased hundreds of rental properties that have bought me financial freedom. I did this starting with $0. You can absolutely do this too. We're going to create today the straight line, the simplest path from, hello, I have met an owner of a piece of real estate, to, hey, they have carried a contract for me. With or without money, I have purchased the property. Utilizing seller financing. Now, seller financing, all it is, is you can finance whatever it is that you own. So just like going to the bank, instead of a bank, the seller, if they have the equity in their property, they can seller finance to you. Now, equity is just the difference between what they owe and what the property is worth. If they have a paid-off piece of real estate, or one where you can find a down payment that pays off all of their debt, you can get a free and clear piece of property that is backed with a note from the seller instead of encumbering it with a note from the bank. Now, you may have heard of a strategy called subject to. This is not seller financing. This is a clause on a land contract, similar, but allows you to keep their debt in place while they still finance to you. We're going to cross out that method right now. Subject to equals no-go because this creates what we call a callable note. A callable note means the bank can go ahead and call that note due if they find out that the ownership of that property transferred. How do we actually create a straight line and a simple method to buy properties even if they have some debt on them? How do you get in these conversations? How do you find these deals? I'm going to share it right now. What is our straight line? So on this end, before we get started, we need to map ourselves. So you Go right over here. Start in line. Know yourself. How much capital do you have right now for your deal? Who do you know who has capital where you could potentially raise funds? It could be friends, could be family, but better yet, just people in your network or other owners that you've met with. How much capital do you have? How much cash flow do you have? How much equity do you have in real estate? These are the pieces that you're gonna be able to maneuver and communicate to someone else when you're talking about your deal. Second of all, before you worry about seller financing, everyone does this wrong. I started wrong on this. They worry about the money because they don't have the money. That is natural, that makes sense, and it's totally wrong. You do not need to worry about seller financing unless you have step 1, the deal. If you have a deal that has a ton of cash flow, the way that you structure this deal and the way that you raise funds for it is totally different than a deal that is value-add with a ton of upside, but lower cash flow day one. You need the pieces of the deal to line up the capital. If you try to line up capital to the right deal, you're really limited on what deals you can do. You're going to move a lot slower. I wish someone told me that. This is the step. Know yourself, know your goals, know your pieces. Next, find an opportunity. How do you find these? Well, you go and call owners who own in your market. Don't worry about how much equity they have in the property. Meet everyone. You will find owners who are in a position to seller finance, owners who are not, but know other people, people who started using creative finance. Meet the players in your market to find the deal. Deal is step 1. Now, how do we actually present this? We have this opportunity. We have a seller who we believe is in a position where they could seller finance. But why would they? They could get a check right now for the value of the property and walk away if we cash them out. So why would they say yes to you? This is a critical, critical piece. Step 2 is you need to map the seller. You have to get to know the owners of the properties that when a deal comes up, you can communicate with them and understand what their objectives are. So second, the seller. What is their goal with the property? Do they want to cash it out? Are you winning on price? If you have a fantastic price, there are so many ways to buy zero down. Where you can bring in either an equity partner or additional debt, and you can take out a property with $0 in your pocket with conventional finance. You don't need a partner, you don't need seller financing. If you massively win on price, you may be able to just cash them out. But what if you're pretty close on price, or maybe if it's a slight overpay for the property? You need to win on terms. I need to understand what the seller is trying to do here. If they want to get cashed out, if they want to scale up their portfolio, if they're in the build phase, they are very unlikely to offer seller financing. If they are later in their career and say this is part of their estate planning, their kids don't want the real estate, they are looking for income, they've already made money in real estate, they don't need a large cash-out event. Perfect for seller financing. It's someone who is struggling. Maybe there's deferred maintenance and a bank wouldn't accept it, so they couldn't be cashed out by anyone but a cash offer or seller financing or other forms of creative financing because a bank doesn't want to deal with it. And that is a property with bad roof, bad maintenance, horrible bookkeeping, way under market rent where you, you definitely get it to where it needs to be worth. But day one, it would not meet the appraisal standards. These are all things where if the seller is trying to get out of a property, that's a problem, or they're in a position where they do not need cash right now. You now have the first step. You found the deal, you've mapped the seller's needs. Now you work on the debt. Now, to find the right debt product, it's very simple, Matt. You use something called a loan factor rate. A loan factor rate is your cost of capital expressed as a percentage. You may not have heard of this because it only matters in creative finance. If you're buying with the bank, this does not affect you in any way. If you get to name your own interest, this is the magic of real estate. So loan factor rate, put it right over here. Loan factor rate is equal to your interest plus your principal payments times 12, because you're doing this on an annual basis. Your annual principal and interest payments, so what you pay to service the debt on your property, divided by the total debt amount. That will equal a percentage. So if you're doing, say, an interest-only loan, this math is really easy because you're basically saying, okay, well, our monthly interest payments by the debt is going to equal whatever the interest rate is. Where people make a mistake is they think a deal is going to cash flow because their interest rate is lower than what's called the cap rate. We'll get to that in a minute. Let's say we have an interest rate of 4.5% on an interest-only loan. Your loan factor rate will be 4.5%. Pretty simple. If it's principal added in there, if it's an amortized schedule, we just need to know the actual cost of capital to us on an annual basis expressed as a percentage of our debt. We're going to compare that to something called the cap rate. Now, cap rate— we'll shorten our line here— cap rate. That is the net operating income for the— of the property. So what it brings in, total income minus expenses, not including the debt, is just operating income and expenses divided by the price that you are purchasing at. So we have net operating income over purchase price. Let's say that equals 6%. So we're in a cap rate of 6% on our specific deal. We have a loan factor rate of 4.5%. This means for every dollar I borrow, the spread between these is 1.5%. This is how you magically know how much you can offer for an interest rate on any deal. If there is positive spread on every dollar you borrow, if your loan factor rate is lower than the deal's cap rate day one, The more you borrow, the less you put down on the property, the more money you make. So now we know that we can look for a low down or sorry, yeah, very low down and low interest seller finance note to justify a price that makes sense. Loan factor rate, cap rate. Cap rate minus loan factor rate is your spread. If that is a positive number, you will make money on every dollar you borrow. So now we figured out a debt product that works for us. We know on this deal, We make the spread that we're looking for if we borrow at 4.5% interest only. If they want an amortized schedule, we're going to calculate our loan factor rate using the principal and it'll have to be a little bit lower to get the same amount of cash flow because principal, while it does pay down your loan, negatively affects your cash flow. Rules of the game: long-term, cash-flowing, fixed-rate debt. Once we find that product, now we get to the last step. Equity. How much is being put down? Is it something that you can afford? Can we do it all as debt or say we did something where we negotiated? Where's the last piece of equity of this deal come from? It's going to come from an equity partner. It's going to come from someone who is outside the deal. If you can't service additional debt to get this deal done, I need to find someone who comes as a partner. Now, we do not want to partner with people forever. That is very dangerous to do. Do not recommend. Reference to any video I've ever done on partnership for why that would be. Defined ending to the partnership. You're usually going to give them some multiple. So on the project in the future, I will buy you out at a fixed price in a fixed period of time. This allows you to own the deal, own a large chunk of the equity in the deal, have a very simple partnership structure where you did map yourself, found your deal, met the seller, met their needs so you can negotiate the deal. Find the debt, find the equity, push to close. When you have the deal and you've mapped the seller, right in this phase, you're getting ready to write the contract. As soon as the debt's negotiated, you go under contract. Once you're under contract, you have all the steps it takes to close the deal. So your due diligence, your feasibility period, it's usually about 30 to 60 days for the average deal. In this, you are finding your equity partner, and that is deal, debt, Equity done. If you can do it 100% debt, you can actually just go deal debt done. This is how you buy a deal. Anything else you add to seller financing, you're adding steps. Our goal is to never skip a necessary step, but never add additional steps from the path from I don't own any real estate or have any money to I own a piece of real estate that pays me every single month for owning it. And the longer I own it, the more it appreciates. That is the goal. That's the secret to seller financing. How do you actually pitch this? It's going to be the next natural question when it comes to deal time and you think your seller is in a position where they would consider seller financing to you. Just ask them, okay, this is what I think the deal should look like. I can put this much down right now, whatever number you feel is reasonable that you could either raise as equity or you start with. Some of us actually do start with some money. I didn't. But if that's you, here's what I could put down. On this property to purchase it. I think that the payments will be— actually, editor, cut that right before I think. For this deal to work for me, the payments need to be 4.5% interest only for 5 years. This gives me time to get through my project, to stabilize the building, and to actually be successful in the project. You're locking in your long-term Cash flowing fixed rate debt. I will give you your price. I want to put this much down, in this case 10%, and the terms need to look like X. It will look like payments that are made to you in note servicing this often. I don't usually use the word seller finance or carry contract when I make this presentation. I just say, look, I can pay you, say it's a million dollar deal. I can pay you $100,000 right now, or at close. And then after that $100,000, I'm going to make payments at 4.5% interest for the next 5 years, interest only. And at the 5-year mark, I will pay you the remaining balance of $900,000. You'll get paid the entire time. We'll put in professional note servicing. This would make the deal a go for me. Plain and simple. You don't need to ask them, can we do this seller financed? Are you open to creative finance? That is a Really great way to sound like you're a broke person. Just present the deal for what you want. I'm thinking this price, this down payment, this interest. It's going to look like this payments to you in note servicing and it's going to look like a big lump of cash for you in the future unless we opt to extend. And then be quiet and let them say yes. And what you're going to find is you're going to be amazed how many times that they say yes when you have identified your pieces, found an opportunity and understood what the seller is trying to do. They will say yes almost every time. This is how I bought tens of millions of dollars of seller-financed real estate. You can absolutely do this too. Don't add steps to this. This is a quick masterclass on seller financing. Hope this helped. Ask questions below. I do answer in the chat. Like, subscribe, follow for more, and we will see you guys on the next episode.