The benefits of seller financing. Todays Dion Talk

Michael Zuber and Matt the Lumberjack landlord go over how seller financing works and what the benefits are. Buying rental properties is a great path to financial freedom. Helping the seller understand the benefits of seller financing.

Howdy welcome back to dion talk in this video i’m going to be a little bit irritated with myself sometimes when we learn a system that helps us reach financial freedom we get so tunnel visioned that we think it’s the best way because it’s the way that’s working and hindsight is 20 20. recently i’ve learned there’s a strategy that i probably could have used at

Least tried to use on every single one of my deals and i never even thought of it so i wonder how many people are watching me that haven’t thought of this as well because this is a strategy that can solve a lot of problems and it can actually work out a lot more in your favor if you ask a question because the answer is always no if you don’t ask when we’re buying

A property we don’t always have to secure a loan from a bank or hard money or friends and family sometimes the owner can carry the note on the property seller financing this is a way to avoid a large immediate capital gains expense for the seller it’s a way for them to exit being a landlord and still receive monthly payments and i have two friends michael uber

From one rental at a time and matt the lumberjack landlord that are going to share with me because well i’ve never even tried it they’ve at least tried it and mike’s done quite a few deals pretty sure i’m going to be able to tell matt he’s made some mistakes but we’ll see how that goes so let’s start with you mike tell me how your experience has gone with seller

Financing and why was it an option you went for yeah so seller financing is one of those things once you try it and it works it’s like why didn’t i do that more so my first use of seller financing goes way back to like pre-crash and it’s actually written about in my book i think it was the fairest property i write about i’m basically running around i think we

Have two units at the time this is going to be a two family so we’ll get to our third property or four units right so it’s a you know we have two houses this is a two house lot but the problem is we only have i’ll just use round numbers 10 grand and let’s just use round numbers say it costs 100 grand well at the time the only way for me to get the loan in that

Market was to do 20 down or at least as i thought and i didn’t have it but it was a great deal it was one of those deals that made the first two look stupid it was that kind of deal i remember trying to think of all the ways we could get this thing done and it was actually my real estate agent who said have you ever thought about asking the seller to carry a

Second because maybe they would right because again the seller had owned it a while they were done it was vacant they want it was it it wasn’t perfect so they knew they were you know it wasn’t a perfect property so we asked and i didn’t know what to ask for i didn’t i didn’t know so i paid you know my my bank first was at six percent so i offered eight percent

Again i didn’t know i wouldn’t do that today but that’s what i offered i offered a five-year balloon not knowing i would offer 10 years today but again i use seller financing the first time as a second to get a great deal and the seller said yes didn’t haggle took it eight percent ten percent again we’re using hundred grand so ten thousand dollar loan i was able

To close bank eighty percent seller in for a second i brought in ten grand and boom now we’re at four units so that is wonderful um i think that is a strategy that i would suggest more people think about is using the seller as a second where that works is the seller wants some money now but not all of it that is very powerful i i’ve done deals since then where

See also  Financial Planning - Empower Wealth

The seller wants 50 now and is willing to take 50 later payments so you go get a bank first and then you know the seller takes 50 and you know so you can get really creative with these second one of the best transactions i ever did was buy i bought two four plexes a triplex and four houses from one cell collectively speaking these were worth about 1.4 1.5 as is

What the seller wanted was guaranteed payments the rest of his life and he figured he had about 10 years left but he was willing to do a deal with somebody who knew would keep them so my reputation mattered in this case so we actually again will use round numbers negotiated a price of a million bucks so i made a half a million dollars the day we signed but i

Signed a prepayment penalty that was significant uh that i couldn’t refi or sell any of them for 10 years i was okay with that my plans to hold them for 30 years right that was important to the seller so listen um so we’ve done that we closed that deal like in three weeks you know we did a couple walk through inspections did the deal we’ve it’s it’s been a home

Run for us going forward um you know and then seller financing could work again when they have lots of equity or no equity right you can do subject-to and all of those things so again we often miss as new investors the fact that sellers you know maybe maybe cash isn’t the answer we always think it is right all the wholesalers out there are like hey i can give

You cash i can give you cash what happens if the seller doesn’t want cash maybe they have a tax problem maybe they have greedy relatives that’ll just take the money maybe they want income like that one seller’s like i want to go live on a cruise ship the last 10 years and this is going to be how i do it i will hand you half a million dollars if you don’t cash

Me out for 10 years okay no problem i think i can do that right so ask and listen so seller financing has been a huge benefit and likely will be a huge benefit for us going forward asking about seller financing is something that i think i’m going to do on every deal going forward even if it’s off the mls using agents just bring it up it can’t hurt yeah one of the

Things that happens is a mistake by a lot of the people that i’ve worked with to help reach financial freedom and this might be something that you guys have seen too new investors think they need to understand why somebody is selling a property not even just how they want to sell it but i recently had somebody say i want to buy this deal but i think it’s too good

To be true because they’ve only owned it for three years why would somebody want to sell a property in three years that’s cash flowing and i said none of that matters will it cash flow for you and can you get them to accept the offer that’s all you need to think about and now i would add in seller financing so matt have you i want to say successfully but have you

Used seller financing as a strategy yes i’ve used it not successfully yet okay but not today but not today but i will i will um so the deal that i had so i for the smaller ones a lot of the stuff that i’ve had i did a lot of um it it was always asked but believe it or not it was not something that i think my agents the ones the brokers that i used weren’t super

Comfortable in talking about it and i think that that was a big thing i think one of the things that i’ve changed as part of my strategy is actually handing them a sheet that they can then hand to the to the seller and say hey just as an fyi have you considered this um you know because i think that most people falter because they don’t really understand what it

Is i’m working on a deal right now it’s a massive deal it’s a seven-figure deal and uh at least massive for me and so it is a one point it was a 1.55 million dollar deal and we got i finally got the seller to take on about 175 000 worth of that note as a second i’m guessing as a second as a second and so that was great and it was fantastic actually i got him to

See also  Fundamentals of good personal Finance

Do that when the price was one four or five and then he upped the price to one five five and i was like then the bank got involved and they were like that’s now too expensive second note blah blah blah so that actually ended up blowing up the deal because i wasn’t going to come to the table with 30 percent down of 1.55 million i.e 455 465 000 plus closing costs a

Half million bucks so i wasn’t going to buy that property more so that deal fell apart based on the fact that we couldn’t get the seller financing done but what’s amazing to me is that people don’t understand so many i’d say probably 95 of sellers have no idea that seller financing is even an option for them yes and even worse is i’d say 99 of sellers have no idea

How positive it can impact them financially avoiding capital gains actually having uh you know a monthly payment that’s interest only like there’s a million different things about this and so it’s now part of the game that we have that we offer to any of the deals that we’re working on um but yeah so far we haven’t been able i i have one that the owner turned down

The seller financing and i was um honestly i’m shocked i’m like wow okay i mean apparently you just love paying 20 in cap games because i know exactly what he paid for the property yeah a public record so we’ll see what happens but yeah so far not good for me yeah what i would tell you is um you’ve got to take more ownership of this yeah again not you meaning the

People watching this because again you talked about 90 of sellers not knowing i would say 99.9 of real estate agents think seller financing is illegal let alone possible right so you got to have that conversation one thing you can luckily if you have the course one of the sections in seller financing is with a cpa and we actually break down the math about how

You can save significant taxes yes as a seller that was very important for me to add because again i have a background in accounting so i get it and it’s easy for me but i had bob langworthy uh break it down and painstakingly detailed so if you’re in the course go look at that stuff seller financing can be a huge home run for sellers so i have a friend keith

Who’s in the financial world and he pointed out with seller financing that and i want to point this out for somebody that’s just hearing about this for the first time because it’s probably where my brain would have went at the first thought of this was seller financing if you have a banknote is usually not the way to get a 100 finance deal because you can get the

Seller to agree to that and you can agree to it but that lender if they’re carrying a note needs to know that you have skin in the game so it is a way to reduce a thirty percent down to twenty fifteen maybe even ten percent which it sounds like that’s the way it was for your deal mike because you you had ten seller carried some bank had some so it doesn’t get you

To that zero cash deal that people always think is the holy grail of i wouldn’t want to be that leveraged anyway cool so seller financing is a great option are you still using that in your strategies or have you even asked on the last couple of deals you’ve made i uh seller financing is a part of every conversation i actually have some wholesalers that actively

Market with that message from me i will likely do another youtube video something i do on my channel about once a month or once every six weeks is i try to speak to the fresno market hey mike zuber fresno buyer want to talk to all the real estate agents and sellers and landlords that are frustrated i will buy and oh by the way if you want to do seller financing

See also  Shining a Light on Motorcycle Finance PCP

And save on taxes and flip off the irs i’m your guy let me help you so i mark it everywhere i can that seller financing is a good thing okay and matt do you think you’ll be using that going forward absolutely yeah i mean i see the power of it it’s just a matter of we i think we like mike said you know i think from an agent perspective it’s something that they can

Talk about but or something they can say the words but they don’t really understand the mechanics of it so when you can’t explain something and you’re the one offering it when you can’t explain it really well so the seller can really grab a hold of it and say wow i didn’t even think that was a possibility you know so i’m going to look at something this week it’s

Two duplexes that was the first thing out of my mouth that i talked to the agent about was they’ve owned them for over 30 years let’s at least look at seller financing because i think that they’ll love the approach and it will put them in a much stronger position what i would do in that example is again the agent you got to make it really simple with the listing

Agent right it’s they they’ve owned it 30 years what that means is they have zero cost basis that’s right right so they’re going to have to pay uh depreciation recapture and oh by the way do they like the irs if they don’t i should talk to them that’s what i would do and i would stop there yeah we had the conversation because it was i think it’s about six hundred

Thousand dollars and they own them out right and sure if you’re only paying 20 cap gains it’s still going to be 120 grand yeah it’ll be worse than that because depreciation recapture that’s that’s why the minimum basis is 120 and if they do go retroactive on the 39.7 now it’s 240 000 and you literally just gave that i mean you gave that away and you got nothing

For it whereas in this particular case they could potentially even do complete seller financing yeah maybe i give them a hundred thousand bucks and say i’ll give you a hundred grand and then you finance the other 500 and they could be tickled pink with that so yeah they’ll get absolutely income for the rest of our lives not have the headache and then when you know

When they pass on because what you don’t realize folks is what what does the seller have they have a note that’s a financial instrument that note has value they could in theory take that note sell it on the open market and get cash for it right it’s an asset that’s on their balance sheet will be part of their estate another thing that people a lot of people don’t

Even know exists is that note market yes that there’s a whole market of people buying and selling notes there’s a note convention coming up i think in november or something i i don’t know the date but it’s a whole community the really important thing i think with seller financing for anybody watching this who’s thinking hey that’s a great tactic i want to try it

Is if you can’t explain something to somebody else simply you don’t understand it well enough so right now if you couldn’t tell somebody sitting next to you how seller financing worked it is not the time to pitch it to a seller do some research find the videos read some blogs educate yourself on the subject and possibly make that next deal better than it was

Going to be until my next video thanks for coming to my dion talk we’re sorry the number you have dialed is not in service at this time thank you matt for doing the not today thing something i’ve never really brought up is when i when i make a video and put it out i can like script in here’s the thought where i’ll go but not today right yeah how do you do that

In a live video yeah so thanks recording happy

Transcribed from video
The benefits of seller financing. Todays Dion Talk By Dion Talk Financial Freedom