In this conversational YouTube episode, Christian and Cody Osgood discuss seller‑financing from the buyer’s perspective, outlining its major advantages and pitfalls. They explain that seller financing removes the need for bank qualification, allowing buyers with limited cash, credit, or employment history to acquire properties that would otherwise be inaccessible. The duo highlights the ability to negotiate interest rates, down‑payment terms, and special clauses, which can improve cash flow and protect against rising market rates. They stress the importance of building trust with sellers through consistent performance and transparent communication, sharing anecdotes of large deals and operational challenges they overcame. The hosts also address the risks: the lack of institutional underwriting can lead to over‑leverage, balloon payments, and emotional complications when personal relationships with sellers become strained. They advise disciplined underwriting, ensuring positive cash flow, and maintaining long‑term fixed‑rate debt. Finally, they promote their educational platform, multifamilystrategy.com, offering courses and mentorship to guide newcomers through creative financing while avoiding common mistakes.
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My past mentor had a negative cash flow and he confused that for positive, and that's a really dangerous place to be.
Yeah, cash flow is cash flow, Cody.
Well, it's not positive. Today we're talking about the pros and cons of seller financing from the buyer's end because we buy a lot of seller-financed real estate.
Hey, I'm Christian Osgood, this is Cody Osgood. Welcome back to the channel. If you haven't yet, like and subscribe. Here we go, benefits of seller financing for the buyer.
Now let's talk about the pros. Number 1, you don't have to qualify for anybody other than the seller. You don't have to qualify with a bank, you don't have to have a ton of cash, and you don't have to have great credit.
Which is really helpful because did you qualify for your first million-dollar loan?
There was no chance I would qualify with a bank, however I did qualify with the owner.
Mm-hmm, that's perfect. For me, when I started in real estate, I qualified for my first house and my first duplex and my second duplex.
You had to jump through a lot of hoops, right? You had to go get your credit up.
It was so much. I had to have a career where I had worked about 4 years because I swapped into a commission role.
Yep.
And for for a commission, for that to be counted into your actual taxable income where they're gonna count it for a loan, you have to have 2 years of the same or a similar job. I completely switched careers, so I had to have 4 years before I could even qualify for a house.
Bummer.
Yeah, but I bought a house, a duplex, another duplex, and then you and I went after a $2 million 38-plex. Guess what? The property didn't qualify for financing, and neither would I.
So as a buyer, it allows you to buy properties you couldn't buy otherwise. Another thing is you can adjust the rates. Everybody's freaking out, heads on fire because of where the rates are at right now. They've more than doubled from where they were at a little over a year ago. That's a painful place to be for a lot of conventional borrowers. For us, we set the rate. We work with the owner, and as a buyer, that's great because I can get cash flow that no one else can get when they're buying with a traditional loan.
As someone who does a lot of seller financing with Cody and with some of our other partners, it is absolutely critical that we can set the rate. When people ask, hey, what do you guys thinking about the economy, like, are you worried about interest rates? Well, no, because we buy on long-term fixed-rate debt. We set our debt where it cash flowed. Now, occasionally we do borrow at high interest rates when the deal makes sense.
We just borrowed a deal at 7%. Uh-huh.
We just bought a tiny house at 10%.
Ouch.
However, it was zero down and it will cash flow. It's that simple. The interest rate is something that is negotiable, but the nice thing with seller financing is you can set the price, you can set the terms, you can set the interest rate, you can put some crazy cool special clauses houses, which we've done some really interesting ones, but you can get as creative as you want to be. You don't have to qualify for anyone except for the seller. How do we actually build the trust and confidence with the seller where they're going to be willing— like, we're in a resort right now where we borrowed $3.5 million from one person. Crazy.
We had to do what we said we were going to do over and over and over. You want to build trust with people, you get a takeaway from them. You apply it and you let them know it worked. Every time they give us a takeaway, we let them know it worked. So the first December, we crushed their numbers by 26%. They've never gotten that high in a December before, and we crushed it our first December while we were switching systems, figuring it out. We applied what they shared with us, we let them know it worked. That inspires more confidence in people.
Can I also add, it was also during a snowstorm and a flood and power outage.
Yeah, we had to do refunds, like we had a lot of issues. We had floods, the water was all the way up to the level almost in here. I mean, it was just outside the door. We had a ton of issues, and not only do we have one pink tide, we've had two. So we've had more issues than they've ever really had in operation, and we still crush the numbers. When we go take that to people that we want to work with and buy from, that instills a lot of confidence because it shows we're not just investors but we're operators.
Now another question is, when you're a beginner, so before you've built the track record, you have the story of repetitive success, because I mean, now we're at a point where it's, it's all different. Yeah, we've done about one seller finance deal every month, about every 6 weeks seems to be our average. We've bought a lot, so it's really easy now to talk to someone, "Well, how are you going to repay this million-dollar loan?" Well, the same way we're going to pay the other $12 million.
Like, with money.
We do this all the time. We have a track record. Before you build that, I really love your story because you started with $3,000. You dropped out of college, so you have, you know, medium education, medium to low education. No experience, absolutely no money, and no track record. How do you build confidence from that point?
Well, I was already working on stuff. I hadn't done anything, but just because you don't have a track record in real estate doesn't mean you don't have a track record. And that's where a lot of people get confused. I was working on a 22-unit. It was a 6-plex, a 4-plex, and a 12-plex, seller financed for another broker's client that my mentor at the time said, "You should try and buy it." And I was like, "I don't have the money." He's like, "Well, what if you raised it?" And so I wanted to take a swing at it. I didn't even get under contract on it, but it fell through. So when I called this 12-plex, I was like, "Hey, I was working on a 22-unit, it fell through." That inspires confidence. Now, am I lying on that? Absolutely not. I was working on the 22-unit. I needed a 1-week extension to get it all done, and it didn't happen. Worked on it, fell apart, transferred over to this 12. Well, in their mind, they're like, okay, this guy was working on 22 units, he could probably do 12. And so that inspired confidence. If you are working in the space, it doesn't matter what you've done, but it matters what you're doing and where you're going. That is a track record, even if you haven't owned real estate. But you have to be able to communicate that. If you don't have a lot behind you, you gotta at least be able to communicate the things that you got in front of you. Mm-hmm.
Now, creative financing, I wanna define it really quickly, 'cause I think this is really important. When we're talking about the benefits of creative finance, I wanna take one step back, go against anything out of that box of I have to go to a bank, I have to put X amount of my own money down into the deal, I have to jump through these hoops to qualify. I've done that a few more times than Cody has, and it's an absolute pain. Now, creative finance doesn't mean it's this crazy new thing. In fact, this is how everything used to be traded. Like, people used to negotiate the terms of whatever they wanted to do. Yeah, person-to-person loans have happened all throughout human history. This is fairly normal. However, it used to be so easy to go to a bank. Banks used to have all these zero-down products. In fact, that's what crashed the market, because banks aren't quite as good at this as people are. And so, or at least as individuals are. I guess banks are still collections of people, but you get the point. People got addicted to, hey, this is what I do. If I want to buy a property, I go to a bank. A bank will 100% finance I finance my deal. As we pull away from that, our goal, especially in this year 2023, is we want to normalize the creative finance conversation again. This is a typical, normal way to buy real estate that's just kind of gone out of fashion. I think this is going to be the most powerful tool that you have because interest rates went way up. They more than doubled really fast. If you can choose your own interest rate, you don't have to deal with the hassle of the bank, and you're not subject to anyone else's rules.
Now let's talk about the cons, because debt is a double-edged sword, and when you Customize your debt, it gets even more dangerous. There's no guidelines telling you, oh, you can't do a 1-year balloon zero down. There's no guidelines saying this is probably a risky loan. You have to have the discipline to say, okay, I can buy the real estate, but can I hold it forever? You can over-leverage really quickly if you create all these different loans. You could go borrow $12 million of real estate on a million-dollar property. You can do whatever you want. It's a promissory note and a deed of trust. You don't want to go underwater, so you need to make sure that number 1, you cash flow. Number 2, you got long-term fixed-rate debt. You got great debt coverage. Number 3, you're not just deliberately overpaying for everything you buy. That is a very dangerous back— you know, it's the backside of this that most people don't really see.
It's a huge con because if you're going through a bank, the one great thing about banks is that they are going to make it hard for you. They are going to make you qualify. They're going to have these safeguards where you have their underwriting. You're going to have to underwrite the deal, then they underwrite the deal, then they send it to another team, and then they get a stamp of approval, then you get a loan. In a seller finance deal, you're the underwriter. Which, by the way, this is why we created our course, for a huge reason. You have all these benefits, creative finance that we know how to normalize, and you have all these pitfalls. What we don't want people to do is watch our channel and go, oh my gosh, seller financing is easy, so I can just promise them anything, and I'm gonna play with fire. If you play with fire, you're likely to get burned. So we will guide you through this. We put an online course online, multifamilystrategy.com, and we also have our mentorship through the multifamilystrategy.com. We'd love to guide you through this so you don't get burned.
That said, and this is something that my past mentor did, he said, Cody, if you play with fire, you will get burned. And then he played with fire and he got burned back. You need to make sure that you know and you internalize that your promises are only as good as the backing behind them. If you have nothing backing up your promises, they're worthless. You have to build something that not only goes up in value, but that cash flows, because cash flow is what keeps businesses alive or allows them to die. Because you have to have an adjective before it's either positive or negative, it describes the cash flow. My past mentor had a negative negative cash flow and he confused that for positive. And that's a really dangerous place to be.
Yeah, cash flow is cash flow, Cody.
Well, it's not a positive. You got to do this on good principles, and we outlined our principles on the YouTube channel, so it's the reason we shared it. We violated them on occasion to expand into the hospitality business. However, we had enough cash flow from the actual multifamily real estate that we've been sharing with everybody. We show you how we do this. Actually, someone sent us a selfie video in front of one of our properties today.
That was really fun.
Yeah, but it It's just super simple. You build your base in something that's long-term fixed-rate debt that cash flows and allows you to do the expansive projects that continue and further your adventure.
Speaking of the property, the one person just drove past, that reminds me, because that was actually an owner that we had a little bit of difficulty with, so I won't name the property so we're not calling out anyone, but in seller financing, it's a personal relationship. I think it's one of the biggest pros to seller financing is—
It's personal.
Yeah, it's personal. You get to build relationships. It's really fun.
However, the con It's personal.
Sometimes, and we've had this happen twice, the prior owner really doesn't feel like they're not still the owner. And so they'll drive back by the property and they go, "Hey, I really think this needs to be this way," or, "What are we doing on this?
We don't do boat storage here." It's like, yeah, that was one of our multifamily rentals. They thought it was still theirs.
I mean, they know it's not still theirs, but accepting that has been really hard. And we've seen it happen multiple times. The lender on any of your deals, be it a bank or a private individual, until you pay off that debt, they're invested in the property. They are— they have a vested interest. They're part of your team, like it or not. You have to deal with them. And in creative finance, one of the nice things about banks, one of the few, is it's an impersonal relationship. Like, sure, maybe you like your bank rep. I know I love ours. Yeah, I'll name drop Connor. Connor's awesome. Kent location. However, They're not going to be your best friend. They have strict guidelines. It's a very impersonal relationship. It's business-focused. In seller financing, that line gets blurred. I would say it's one of the least comfortable pieces of creative finances. Some individual has your loan, and if they decide to get emotional, that affects you directly. And that's something you're going to deal with if you do a lot of seller finance deals, just realistically.
Yeah, it's a huge drawback for actually going out and getting all these loans with people. It's very personal business that allows you to get a lot of opportunities on the, on the pro side. You get a lot of opportunities you couldn't get otherwise. However, on the back end, you can also get caught up in a lot of emotional situations that you may not want to be a part of. So things to think about, things to consider. But we appreciate you checking out this video all the way through the end. Make sure if you haven't already to check out themultifamilystrategy.com, smash the like button, hit subscribe, and we'll see you guys next time.
