Seller Financing and Real Estate

Depending on your individual circumstances and overall real estate investment goals, seller financing may be a great option for you. Seller financing refers to the process of having the person selling the real estate also provide financing.

Seller Financing Real Estate

Market performance is a key indicator because, if the real estate market is doing well and banks are lending significant money for mortgages, then this may be a less attractive investment option. On the other hand, if banks are reluctant to lend money and the market is slowing down, that may the right time to explore your options.

Know the Advantages and Risks

Like with any investment, there are always advantages and risks to explore, and the same is true for seller financing. One of the biggest advantages of this option is that you, as the seller, can often charge a higher interest rate. This means you may be able to make more money from your property than you originally invested. The major risk associated with this approach is the potential for borrower default.

To determine if this strategy is ideal for you, first learn how to really analyze the market trends.

3 Secrets to Attract Passive Investors

3 Secrets to Attract Passive Investors

Passive property investors are an important aspect of your multifamily syndication deals. Unfortunately, it can be a significant challenge to attract passive investors, and retaining the investors that have already signed on adds to the challenge.

While many people think that the primary concern of passive investors is their return on investment, many investors are more concerned with their money being in reliable, trustworthy hands. Likewise, they want to ensure that they receive frequent updates regarding the status of their investment, and they want a hassle-free experience. Each of these specific concerns could play a role in your ability to attract passive investors and to keep them.

Generally, a passive multifamily investor may be offered a comparable return on investment from different opportunities. You can expect an investor to weigh the ROI into his or her decision-making process.

However, because ROIs may be relatively comparable, you may expect other factors to be equally important to the investor. Because there may be far more variation on these other factors, they could make or break an investor’s decision to invest with you.


1. Provide Peace of Mind

First, investors want to know that you will make intelligent decisions with their funds. Your investors want to know that you will not lose their money. With this in mind, an investor’s money should ideally be used as a down payment for the investment, for closing costs, or for renovations to the property.

The unfortunate reality is that no legitimate syndicator can guarantee that money will not be lost. This is because you cannot foresee all factors that may affect the property or the market conditions.

However, there are a few steps that you can take to decrease the likelihood that investment capital will be lost. These steps, which may also be referred to as the immutable laws of real estate investing, can also be used to optimize investors’ returns.

First, avoid buying a property solely for appreciation. This is because there is no way you can know with certainty if the market will go up.

When you buy for cash flow as an alternative, you are more likely to achieve the numbers you present to potential investors. The caveat here is that you can count on forced appreciation, which is appreciation caused by some value-add activities. These activities may include renovations, increasing income, or decreasing expenses.

Next, take out a long-term mortgage. For example, if you plan to hold the property for 10 years but you take out a five-year balloon mortgage, you inevitably will need to sell or refinance the note.

On the other hand, if you take out a 20-year mortgage, your exit plan will be executed before the debt is due in full. Because there may be various situations when your business plan does not pan out, you may need to hold the property longer than necessary to avoid a loss. When you choose long-term debt, you are avoiding a scenario where you may need to sell or refinance before it is financially advantageous to do so.

Finally, avoid being forced to sell. The first two principles feed into this one. If you are forced to sell before you are ready to do so, you may run the risk of selling for a loss.

With these principles in mind, you must have a solid financial background in order to attract passive investors. This should include both hands-on experience and education. If you lack experience, you could overcome the challenge by bringing on a broker, a property management company, or another party who has sufficient experience.

Even if you assemble an expert team for your current syndication, it is important to continuously refine your knowledge and to accumulate experience in multifamily investment. In addition to being knowledgeable and experienced, you also should be trustworthy. You may find that it is easier to attract investors if you know them personally, through online platforms, or because of other shared interests.


2. Maintain Consistent Communication

This takes us to the second factor that can help you to attract passive investors. While passive investors are hands-off investors, they still want to know that their capital is being properly used and looked after.

You can and should be a responsive communicator and respond to inquiries promptly. You also should reach out when an issue develops. You should communicate what the challenge is and what approach you are taking to resolve the situation.

By communicating effectively and in a timely manner on established syndication projects, you may find that it is easier to convince your passive investors to continue investing with you on future projects.

As a rule of thumb, you should keep them informed with quarterly financial statements and with monthly updates related to capital expenses, renovations, rental rates, occupancy rates, outstanding issues, and more. Your investors should always know the status of their investments.


3. Make the Process Hassle-Free

Finally, passive investors want a hassle-free experience. While passive investors want to be kept in the loop, they are not responsible for the daily property operations. Generally, these are investors who may be busy with various other projects and responsibilities, so they want to contribute as little time as possible to the management of their investment.

These investors expect to send you an initial sum of investment capital. Then, they expect to see a return and to receive regular updates on their investment. This should be the extent of their efforts in the deal. For the convenience of your investors, you may even consider setting up a direct deposit for investors to receive their distributions.

The ability to attract passive investors and to retain their interest for future deals is crucial for your success with multifamily syndications. Whether you are putting together your first syndication or you are managing an existing syndication, these are important rules to live by.


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7 Metrics to Track When Raising Money for a Fund

7 Metrics to Track When Raising Money for a Fund

If you’re raising money for a fund or are interested in doing so in the future, prepare to be faced with a few challenges.

For example, when you announce the fund to members of your database, they will either decide to invest or not invest — but then what? It’s not ideal to keep sending the same people emails about the same fund. You will need to continue to generate leads in order to grow.

To attract more investors, you’ll need a solid marketing strategy. That’s where Joe Fairless’ seven metrics to track when raising money for a fund can help.


First, Get a CRM

Before launching into the metrics, it’s important to note that having a CRM is an absolute necessity when raising money for a fund. HubSpot and ActiveCampaign are great choices, but there are plenty of others to choose from.

Also, make sure you have an expert who is working on your team’s behalf to track the CRM; otherwise, you will only be scratching the surface. Without an expert, it’s unlikely that you’ll get the most accurate information you’ll need to make business decisions.


Qualified Investors vs. Investors Who Have Funded

It’s also important that you make a distinction between qualified investors and investors who have funded. Although you may have an excellent lead source, you need to track how many of those leads actually convert to people who are funding. If none of your hundreds of leads convert, then your lead source didn’t provide you with the right audience.

Make sure you are always measuring both qualified leads and funded leads, and that you know the difference between the two.

After taking these first two steps, you can begin tracking the following seven metrics:


1. Total Amount of Spend

The first metric is straightforward. Identify the total amount of money that you have spent to date on attracting new investors.


2. Total Qualified Leads

Calculate the total amount of leads you are attracting who are qualified. To determine this, ask: Are they accredited investors? Do they file U.S. tax returns? You may even want to qualify these leads based on their potential investment amount.


3. Qualified Leads Cost per Acquisition

The third metric is the qualified lead CPA. Of the total amount of dollars spent, you’ll need to know how many leads you are generating, and what that equates to from a per-person standpoint. Ask yourself how much it costs you to attract one qualified lead — the dollar amount is likely going to be in the low hundreds.


4. Funded Leads Cost per Acquisition

Determining the funded lead CPA involves tracking the cost per acquisition of each lead that you bring in who funds. It can be calculated by dividing the total amount spent by the number of leads who actually fund. This number should fall in the low thousands.


5. Average Funded Amount

The average funded amount will show you how much each lead is funding. This includes returning investors as well as new investors. The average funded amount doesn’t provide the average first-time funder amount, however, which is another important metric to track separately.


6. Average First-Time Funder Amount

This metric tells you how much new investors are investing on average. The average funded amount is often higher than the average first-time funder amount. It makes sense — people who have been investing with you for a while are likely to invest more. Meanwhile, first-time investors who are just getting to know you are likely to invest less at first. There is typically about a $40,000 difference between the average funded amount and the average first-time funder amount, but that certainly could vary depending on what your minimums are with your offerings.


7. Percent of Qualified Leads Who Fund

The final metric to track is the most important to remember. While you may be generating lots of qualified leads, that number is meaningless if you’re not converting them to people who actually fund. The percent of qualified leads who fund is the number that truly matters, and it’s imperative that you track it diligently. When launching a fund, you should ideally review these metrics every two weeks.


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How to Find and Close 120 Units with Seller Financing

How to Find and Close 120 Units with Seller Financing

Seller financing is a great way to make real estate deals happen. In some cases, waiting around for a buyer with a mortgage is never going to produce results. With the right approach, however, you could use seller financing to close 120 units. It’s been done before.

Closing 120 units is no small feat. It’s hardly something you can do over a single week. In reality, finding this kind of success, whether you’re focusing on commercial real estate or multifamily homes, requires years of hard work and dedication. It also requires some highly effective strategizing. If you’re hoping to find this type of success in your real estate endeavors, here are some ideas to consider.


Starting Your Own Company

While working with a big-name realtor can produce a perfectly stable career, you’re going to need more ambition to close 120 units. To become a broker capable of such prodigious success, you’ll need to start a title company alongside an insurance company. From there, you can buy into a real estate franchise and start looking for profitable deals. Creating your own mortgage company is another potential step that can help facilitate sales.


Using Incentives to Build a Team

A successful real estate broker generally works with a team of ambitious agents. The best way to build a talented team is by offering candidates significant incentives. One approach is allowing team members to buy into your insurance company. An ambitious, investment-minded agent will appreciate this opportunity to receive such a tangible asset.


Finding the Partners You Need

A large-scale real estate operation involves a lot of moving parts. Managing every aspect of the business is often too much for a single broker to handle. That’s why savvy brokers seek to forge relationships with third-party partners. You can bring in partners to run many different aspects of your business, especially ancillary companies. With the right deals in place, these partners will do a lot of the legwork while you manage to keep most of the profits.


Mastering the Concept of Seller Financing

Having the sellers finance sales is a great way to make seemingly impossible deals happen. There’s no reason every real estate transaction should involve a traditional mortgage. You can have sellers finance deals with multifamily homes, single-family units, and commercial real estate properties. All you have to do is identify potential targets and convince the sellers to go for the deals.


Searching for Properties

The first step for any broker seeking a deal is to identify properties that match the broker’s intentions. The internet is a valuable resource for any broker hoping to find potential options. Websites like LoopNet and Crexi give brokers a quick and easy way to search for properties. You can use these sites to identify properties that match your criteria. The best options for seller-financed deals usually have at least a 9% capitalization rate. It’s also a sound policy to find properties that don’t need substantial renovations.


Making the Deals Attractive to Sellers

To get a seller to finance a deal, you’ll have to convince them that it’s in their best interest. The best way to do this is by insisting you’ll buy the property at a discount price. If the property sells at only 75% of its market value, the seller will be paid off faster. At the same time, many buyers will insist on an even greater discount in exchange for buying the property with cash. Having the seller finance a deal made at only a slight discount allows the seller to maximize their earnings while getting out of the deal as quickly as possible.

You can also convince sellers to finance the deal by offering to take care of inspections and mortgage contingency. These perks will further incentivize the seller to take your offer and finance the sale.


Building Trust

Trust is an essential component of any successful negotiation. You’ll never convince a seller to finance a deal if they think you’re trying to pull one over on them. While a little secrecy is always necessary with these types of deals, you need to make sure you’re winning the seller over. A wary seller will never agree to finance the sale.


Giving the Seller an Exit Strategy

Many sellers are afraid of being left financing a deal for years after the sale has taken place. That’s why it’s so important to make sure you present them with an exit strategy. Making them see that they have a way out will make them more comfortable with the possibility of financing the sale. Giving the seller this assurance will be much easier if you have your own mortgage company that can perform the exit strategy.


Taking Decisive Action

Meeting your real estate objectives will only be possible if you actively pursue them. Sitting around and wishing you were a real estate mogul will never be enough. While listening and learning are certainly important, taking action is what will ultimately bring you to the top of the profession.


Don’t Remain Stagnant While Learning

Pursuing a career in real estate can seem like an overwhelming process. You’re far from alone if you’re worried your ignorance will hold you back. Unfortunately, many people delay their careers while they seek to learn everything they can about the job. Watching podcasts and reading books is great, but you’ll only really learn if you go out into the world and give things a try. The lessons you draw from your early mistakes will serve you far more than anything you ever read.


Get Out There and Go for It

Closing on 120 units might seem like an impossible task, but there’s no reason you can’t do it if you adopt the right strategy. With your own company and a persuasive pitch for sellers, you can secure more seller-financed deals than you’d ever thought possible. The key is to get out there and give it your best.


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Benefits of Buying the LLC That Owns an Apartment Community

Benefits of Buying the LLC That Owns an Apartment Community

The traditional method for buying an apartment community involves the direct transfer of ownership from the seller to the buyer. In this type of scenario, one or both entities may be an LLC or another entity, and the result is the same. The property will transfer at closing to the buyer listed on the sales contract. At that time, the sales price and the change of ownership are recorded and become a matter of public record. While this is the traditional method of conveying property, it is not the only option. In some cases, it also may not be the best option.

Generally, a tax auditor or assessor will review a property’s taxable value every few years or when a sale is recorded. This means that the property may have been taxed at a lower-than-market value before the sale. After the sale, however, the property’s tax bill may shoot up and be aligned with the sales price.

While the new buyer has likely anticipated this increase when creating projections for future operating expenses, this sharp and immediate increase in tax liability may be avoided through a membership interest transfer. A membership interest transfer essentially is a method where the property’s ownership is transferred from one LLC to another LLC. Because the entire transaction is completed within the confines of the LLC’s structure, the purchase price and the change of ownership are not a matter of public record. Nobody who was not involved in the transaction will know what the sales price was or when the transfer took place.

This type of transfer may be advantageous in a few specific scenarios. One of these is a buy-and-flip situation. After you invest your time, energy, and resources into fixing up a rundown property, you want to sell the property for its current market value. You do not want a buyer to be able to see what you bought the property for, how long you have owned it, and what your profit margin will be. A buyer who is privy to such details may have many questions related to repair costs, the value of the improvements that have been made, and other factors. Through a membership interest transfer, these details are not presented to the buyer. The buyer will then make an offer based on the property’s current condition and relevant comps.

In many areas, commercial real estate values are reassessed every three to four years. The exception is if the property is sold. After a sale, the recorded sales price often becomes the taxed value. This means that the new owner’s tax expense could be significantly higher than the seller’s tax expense. If the new sales price could be kept out of public records, such as by buying the LLC, the new buyer could potentially save money on taxes for the first few years of ownership. Because of how considerable tax liability can be, this could save the buyer a sizable amount of money until the property’s value is reassessed.

Eventually, the property’s value will be reassessed even if the membership interest transfer is used. When a bill of sale is recorded, the sales price usually becomes the new tax value. If no recent sale is recorded when it is time to reassess a property’s value, comps and other supporting data must be researched and analyzed. The burden of defining the new value falls on the tax assessor’s or auditor’s shoulders.

Keep in mind that a membership interest transfer may be legal in all states, but you should consult with an experienced real estate attorney about the process and about structuring it legally. Generally, the buyer will establish a new LLC before closing, and the seller’s established LLC will be listed as the sole member of the new LLC. The deed can be recorded prior to closing to avoid conveyance tax, and this is an additional saving to the buyer.

At closing, the membership interest transfer will be executed. In addition, the bill of sale and other documents related to the transfer of ownership will be executed. Funds related to the sale will transfer at that time as well. Because the property will be owned by the new LLC at closing, the commercial real estate financing process is the same.

Some people are worried that buying the LLC rather than the apartment community would impact their tax basis. However, this concern is unfounded. The seller’s tax basis does not transfer to the new entity. Because of this, buying an LLC would not expose you to additional taxes related to the tax basis.

Investing in commercial real estate can be lucrative, and it may be even more lucrative if you can delay a hike in property taxes for a few years or optimize your return when flipping the property. Whether you intend to use a membership interest transfer as part of a fix-and-flip scenario or to mitigate your property tax liability, you should carefully review your specific scenario with your real estate attorney and with your accountant. Understanding the full implications and benefits of a membership interest transfer when investing in a multifamily community is essential in order to reap the rewards and mitigate risks.


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Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Let’s talk about one of the top loan program providers that apartment syndicators use on their deals: Hud.

Hud can be a great option for apartment deals. We’re going to cover each of their common loan programs, including their permanent, refinancing, and supplemental loans.

Loan 1: 223(f)

The first Hud loan, which is the permanent loan, would be the 223(f). This is very similar to agency loans, except for one major difference: processing time. Plus, the loan terms are actually a little bit longer. So for the 223(f), the loan term is going to be lesser of either 35 years or 75% of the remaining economic life. 

So if the property’s economic life is greater than 35 years, then your loan term is actually going to be 35 years. It’ll be fully amortized over that time period. Whatever the loan term is what the amortization rate will be. If you’re dealing with a smaller apartment community under the $1 million purchase price, then this is not going to be the loan for you.

In regards to the LTVs, for the loan-to-values, they will lend up to 83.3% for a market rate property, and they will also lend up to 87% for affordable. So that’s another distinction of the housing and urban development loans, which is they are also used for affordable housing. There will be an occupancy requirement, which is normal for most of these loans. 

The interest rate will be fixed for this loan, and then you will have the ability to include some repair costs by using this loan program. For the 223(f) loan, you can include up to 15% of the value of the property in repair costs or $6500 per unit. If you’re not necessarily doing a minor renovation, but if you’re spending about $6500 per unit overall, then you can include those in the loan.

The pros of this loan are that they have the highest LTV. You can get a loan where you don’t have to put down 20%; you can actually put down less than 20%. It also eliminates the refinance as well as the interest rate risk, because it is a fixed rate loan, and the term can be up to 35 years in length. You won’t have to worry about refinancing or the interest rate going up if something were to happen in the market. 

These loans are non-recourse as well as assumable, which helps with the exit strategy. There’s also no defined financial capability requirements, no geographic restrictions, and no minimum population. There’s essentially no limitation on them giving you a loan for a deal if the market doesn’t have a lot of people living in it or the income is very low. 

There are also some cons involved when considering a Hud loan. The processing time is much longer than some. The time for a contract to close is at a minimum of 120 days to six or nine months is actually common. Other loan providers have processing times between 60 and 90 days. Hud loans take a little bit longer to process. They also come with higher fees, mortgage insurance premiums, and annual operating statement audits.

Loan 2: 221(d)(4)

The next Hud loan is 221(d)(4). These are for properties that you either want to build or substantially renovate. 

Similar to the 223(f) loan, these loans do have very long terms. The length of the loan will be however long the construction period is, plus an additional 40 years. That is fully amortized. 

This isn’t the loan for smaller deals, because the minimum loan size is going to be $5 million. So if you have a deal that you want to renovate and has got a $1 million purchase price, you’re going to have to look at some other options. 

Similarly, this is for market-rate properties as well as affordable properties, with the same LTVs of 83.3% and 87% respectively. These loans are also assumable and non-recourse as well as fixed interest with interest-only payments during the construction period.

The CapEx requirements for this loan are quite different than the 223(f). For the 223(f), it was up to 15% or up to $6500 per unit, whereas for the 221(d)(4) loan actually needs to be greater than 15% of the property value or greater than $6500 per unit. 

The 221(d)(4) pros and cons are pretty similar to the 223(f) pros and cons. There’s the elimination of the refinance and interest rate risk, because of that fixed rate in a term of up to 40 years. They’re also higher leveraged than your traditional sources. Those longer processing time and closing times can be a pain. There’s going to be higher fees, and you also have those annual operating audits and inspections.

Loan 3: 223(a)(7)

Hud also offers refinance loans as well as supplemental loans for their loan programs. Their refinance loan is called the 223(a)(7).

If you’ve secured the 223(f) loan or you’ve secured a 221(d)(4) loan, you’re able to secure this refinance loan, and it has to be one of those two. You can’t go from a private bridge loan to this refinance loan– that’s not how it works.

The loan term for the refinance loan is up to 12 years beyond the remaining term, but not to exceed the term. If your initial term was 40 years and you refinanced at 30 years, then this refinance loan will only be 10 years, because it can’t be greater than 40 years. 

It will be either the lesser of the original principal amount from your first loan, or a debt service coverage ratio of 1.11 or 100% of the eligible transaction costs. These loans are also fully amortized. The occupancy requirements are going to be the same as the existing terms for the previous loan. These are also going to be assumable and non-recourse with that fixed interest rate.

Loan 4: 241(a)

Hud also has a supplemental loan program available, which is the 241(a). This is only probable if you’ve secured the 221(d)(4) or 223(f). 

The loan term is coterminous with the first loan. Whenever you acquire it, it’s just going to be the length of the remaining loan. You’re essentially just adding $1 million or $5 million to your existing loan. 

Your loan size can be up to 90% of the cost of the property, so essentially a 90% LTV, because you need to have at least 10% of equity in the property at all times. It’s going to be fully amortized. 

They’re also going to base the loan size on the debt service coverage ratio. Because of this, it needs to be 1.45. That’s a ratio of the net operating income to the debt service. Then, the minimum occupancy requirements are going to be the same as whatever the terms are for your existing loan. Like all the loans, they’re assumable, they are non-recourse, and the interest rate is fixed.

And that’s it for Hud loans! What do you think about taking out loans through Hud for real estate purposes? Tell us what you think in the comments below!

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How a Yogi Finds Seller Financing Deals


If you don’t have a w2 job or have reached your traditional loan limit, how do you fund your deals? While there are many creative lending options, from private money to hard money lenders, one attractive strategy is seller financing.


Jeremy Jones, who has been a multifamily investor since 2012, has done 7 seller financing deals. In our recent conversation, he explained the best ways to find seller financing leads and the types of properties that are the best seller financing candidates.


Seller Financing Lead Source #1 – Word of Mouth Referrals through Relationships


Jeremy’s found his largest seller financing deal, an 8-unit apartment, through a relationship. “A broker friend of mind and then a broker that he was introducing to me,” he explained, “we were all in the car driving around and he said ‘hey the people that own that apartment reached out to me. They may want to list it, and they may be willing to carry the note.’” The broker ended up listing the property. Jeremy put in an offer immediately and was awarded the deal.


Besides the 8-unit, Jeremy found three other seller financed deals through relationships. He said, “[I] found [deals] through word of mouth, like a wholesaler, someone that I met at a foreclosure auction, and a broker who knew I was looking for seller financing.”


How did Jeremy create these relationships? “You have natural opportunities to talk about what you’re doing when you start to invest and it plants seeds in the mind of others,” Jeremy described. “Sometimes ideas come to them and they say ‘oh Jeremy might be interested in this!’”


During conversations, especially with brokers, Jeremy will say “I’m looking for multiunit buy-and-hold properties with the possibility of seller financing.” That way, when an owner approaches a broker with a listing and mentions that they are open to seller financing, the broker can respond by saying, “oh I know a couple guys that do this and that’s kind of their business – seller financing – and they have a good track record.” With seller financing, Jeremy explained, “a lot of times, [the sellers] don’t want to just put [their property] on the open market and just take anybody because they want a buyer they feel is going to be able to improve the asset, make payments, and refinance successfully.” In other words, since they will still own the property, they don’t trust an inexperience investor to control it. But in Jeremy’s situation, since the broker has already given him the credibility and social proof, the seller will likely be more comfortable awarding the deal to Jeremy over a random investor they don’t know in the open market.


Related: The 4 Keys to Building Relationships via Social Media

Seller Financing Lead Source #2 – The MLS


Obviously, Jeremy had to build up relationships over time before it was a reliable source of leads. So when he first started searching for seller financed leads, he used the MLS. “I have a broker that I work with who has set up an automatic [MLS] search that sends me an email with all the properties that meet [my] criteria,” explained Jeremy. At first, his criteria was all multifamily properties in his county where the seller was accepting seller financing.


However, for Jeremy’s first two deals, he followed a different strategy. Jeremy said, when discussing his first two deals, “it was multifamily properties that had been on the market for a little while. We figured maybe they’d do seller financing because they’re tired of having this thing listed.” Even if the listing doesn’t directly say “we accept seller financing,” that doesn’t completely eliminate the possibility, especially in situations where the property has been listed for a long time.


For the properties Jeremy purchased on the MLS, he said, “either it said on the MLS that they would take seller financing or it didn’t say that but they’d been on the market for a little while and it was a value add opportunity where they had a low enough mortgage balance that we could do seller financing and give them a down payment big enough to cover their existing debt.”


One of the reasons why properties with extended time on the market are great seller financing candidates is because the seller is asking above market value. So when Jeremy finds a listing that is 30 to 45 days or more, he’ll reach out and say “hey your asking more than the market is willing to bear right now, but we’ll get close to that if you can give us seller financing, so that we can leverage more on the property. Here’s our plan for value add and here’s our track record. We’ll get you cashed out in a year of 18 months.”


Like most investment strategies, this approach is a numbers game. “I’d say for every 10 that we ask,” Jeremy said, “maybe one says ‘maybe I’ll take seller financing.’ It’s not like we hit a lot, but if we can hit one or two a year, that’s a good growth rate for us.”


Related: Hassle Free Seller Financing Trick

Seller Financing Lead Source #3 – Property Won’t Qualify for a Bank Loan


For three of the properties Jeremy purchased using seller financing, the sellers didn’t have much of a choice but to accept seller financing because, for one reason or another, the property couldn’t qualify for a bank loan. These types of properties are the most ideal for the seller financing strategy.


For the 8-unit deal mentioned previously, Jeremy said, “it was an interesting one. The owners had completely paid it off. They were elderly, living in one of the units and only … one other unit was occupied. Six were empty because they just liked to have a quiet lifestyle. We got seller financing at a good price because we said ‘you can’t really finance it with a bank without showing income, so if you do seller financing with us for 18 months, we can get it healthy and then we will refinance.’ They really liked that.”


The owners of the first property Jeremy purchased with seller financing also couldn’t qualify for a bank loan. “The first one that we purchase had a buyer that was going to use a bank loan,” explained Jeremy. “The appraiser thought that the foundation needed work and that they wouldn’t loan on it until that work was done. It went back to active [on the MLS] and then I came in with the seller-financed offer. They thought ‘this is great because seller financing will go through and there’s no appraisal to block it. Then it’s these guys problem to fix the foundation and do their refinance next year.’”


Finally, Jeremy’s second seller-financed property was severely under-rented, relative to the market values, and wouldn’t qualify for a bank loan. Also, Jeremy said, “one of the units was empty and being used as just a laundry room. It was maybe earning less than half of what it could earn just by getting all the units functional and up to the market rent. If a buyer came in with a conventional offer, the bank would be seeing a very low income, so that’s why we said ‘well if you give us a year of seller financing, we will be able to refinance it the next year.’ They said yes.”




The best way to get leads for properties that are seller finance candidates is through word of mouth referrals and relationships. Since relationships take time to build and grow, the best place to start is on the MLS. A few properties on the MLS will state that the owner is willing to accept seller financing, but properties that have been listed for 30 days are also great candidates.


The type of properties that is likely to be seller finance candidates are properties that cannot qualify for bank loans. These are properties, for example, that has major maintenance issues, has high vacancy rates, or is severely under-rented.


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Hassle Free Seller-Financing Trick


In my conversation with Nate Tanner, who specializes in hassle free seller financing, he shared how he stumbled into his current business model by being resourceful during the 2007-08 real estate crash. He explains why his seller financing strategy is a great way to make the most money while doing the least amount of work.


When the market crashed back in 2007-08, Tanner was stuck between a rock and a VERY hard place. He controlled 6 properties that had hard money loans at 18% interest! Most people that were facing similar situations defaulted on their loans, and the banks took their properties back. However, Tanner says that he was too stubborn to do that and instead, he went into resourcefulness mode. As a result, he was able to find a strategy that would allow him to salvage the situation. He brought in 6 partners that could qualify for bank loans and sold each property to an individual partner. Then, he deeded the properties into an LLC that was a joint venture between him and the partner borrower. Finally, they sold the properties via seller financing so that they could sell them above the market value.


After successfully navigating his way out of this disastrous situation, he realize that if this strategy worked with properties that were way underwater, how great would it be if he bought properties the right way from the beginning, and then followed the same process? Therefore, out of a seemingly disastrous situation, an amazing, hassle free trick was born.


The main reason why Tanner likes this strategy is because it allows him to wring the most out of a real estate deal. For example, let’s say he finds a deal, runs the numbers, and determines the following:


  • Purchase Price: $70,000
  • Renovations Required: $30,000
  • All-in Cost: $100,000
  • After Repair Value: $140,000


At this point, Tanner has the option to follow 1 of 4 strategies, one of which being the hassle free seller financing strategy that is his current business model:


Strategy #1 – Wholesale

Tanner could quickly wholesale the deal for $75,000, making the spread, which is $5,000


Strategy #2 – Fix and Flip


Tanner could flip the property, having an all-in cost of $100,000 and sell for $140,000. After commission, closing costs, and carrying costs, he would make a profit of $25,000.


Strategy #3 – Wholetailing


Wholetailing is a cross between wholesaling and retail. Therefore, Tanner could clean property up, put it on the MLS, and walk away with a $15,000 profit.


Strategy #4 – Hassle Free Seller-Financing


The strategy that Tanner would actually follow would be the hassle free seller-financing model. He cleans the property up, to the same degree that he would if he were to have followed Strategy #3 – Wholetailing. However, instead of putting the property on the MLS, he sells it as a seller finance deal and explains that it needs work. Typically, the work required is minor, but he applies the same strategy to major fixer uppers as well.


Following the example, Tanner would put in $5,000 in renovations and sell it for $105,000. At that point, the big key is to bring in a private lender and borrow the $75,000 at 6% from them to get all of his money back ($70,000 purchase price + $5,000 renovation budget), and then sell it to a buyer with $10,000 as the down payment and at 8% interest.


After completing the sale, he has made the $10,000 upfront, and on top of that, he makes the monthly spread between the 6% interest paid to the private lender and the 8% interest he receives from the buyer, which over a 10-year period would come out to another $40,000


When comparing all 4 strategies, Tanner’s hassle free seller-financing model results in a $50,000 profit, which nets him twice as much as the flip, 10 times as much as the wholesale, and over three times as much as wholetailing.


If you don’t need a big chunk of cash right now, then Tanner’s hassle free seller-financing strategy is a great way to get the most money with doing the lease amount of work!



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Joe Fairless