Negotiating Seller Financing Down Payments

Attorney and Master Real Estate Investor, William Bronchick talks about how to negotiate seller financing down payments to your advantage.

Hi i’m bill brought chicken in this video i’d like to discuss the delicate art of negotiating an owner financing deal particularly where the seller wants a whole lot of money down and of course you went by with little or no money down so how do we deal with some of those seller objections well i’ve got four different ways to handle the objection of the seller wants

More money down and the first one is what i refer to as the double down i got this from my friend blake barney’s it was a great negotiator and what he would say was to the seller let’s say you’re offering the seller 10% down and the property needs some work which is roughly the equivalent of that amount their seller says i want more money down so you say well i don’t

Want to make a double down payment and the seller says what do you mean by a double down payment as well i have to put x amount on the property and then i have to give x amount to you that’s a double down payment so the seller it looks a little puzzled but they sort of gets your point and how do you resolve that we resolve that by saying to the seller listen instead

Of me putting this big chunk of money down to you plus this big chunk of money to you know fix up the property if you want to make sure i have skin in the game and that’s really the objection the seller is gonna have most of the time then i’ll do is i’ll put the money into a reserve escrow so you have a third party you know the bank or a trust company title company

And attorney who’s gonna hold the money in escrow so let’s say for example you’re putting ten thousand down and putting twenty thousand and repairs in the seller system what’s another ten or twenty down what you do is you give the seller tenant closing the escrow agent will hold the additional twenty and then when you do the work the money is released from escrow

So you’re still out-of-pocket let’s say thirty grand as opposed to maybe fifty grand you have skin in the game so you satisfy the seller and everybody’s happy in that regard the second is what i refer to as the subordination now if the sellers objection is i need you to have more money down because i want you to have skin in the game then you know number one is

The strategy for that or possibly number three look but if this seller just says i need more down because i just need more money right now then the subordination technique can work very well now typically let’s say of a hundred thousand dollar price and you offer $10,000 down seller is going to carry the other ninety and that’s going to be a first mortgage of the

Property or first key to trust on the property and you’ll be the owner of the property of the deed so if the seller says well i need $30,000 – haven’t even want to put of course $30,000 down you say to the seller look i’ll give you that $30,000 down instead of the tenth what the other $70,000 note is going to be collateralized with a second mortgage on the property

He’s going to subordinate to a new first mortgage and that new first mortgage is where you’re going to get the thirty thousand dollars so let’s say you went to a hard money lender a private money lender or relative or friend who can lend you $30,000 on a hundred thousand dollar property which shouldn’t be a risky proposition at all i should be able to negotiate a

Reasonable interest rate and then you give that bar where a note and a lien mortgage or deed of trust as a 1st of the property you take that 30,000 and then you give it to the sellers of the seller gets his 30,000 at closing but then the $70,000 that the seller is carrying this note is going to be secured by a second lien deed of trust or mortgage on the property

So after closing the title will be in your name there’ll be a first mortgage to the private money lender and there’ll be a second $70,000 mortgage to the seller that’s what we referred to as a subordination again it’s not going to work if the seller wants you to have more skin in the game because in this case you have no skin in the game you’re all borrowed but if

The seller just needs more money and he’s willing to subordinate the balance if you give him a bigger chunk down then this is a very viable strategy number 3 pre-pay so back to the first scenario seller santa’s you’re only put $10,000 down and i don’t really feel comfortable because i won’t you have more skin in the game or you’re looking 5% down or maybe green

Offer has nothing down how do you satisfy that objection well if you give the seller more down you’re not going to see that money back for a while – you sell a refinance the property but it so instead you say the seller listen i’ll give you six months or maybe even a year’s worth of payments up front on the property and that way you know if you make let’s say 12

Payments up front and then you turn around and rent the property you’re gonna get those payments back over the next 12 months in terms of rent as opposed to giving a chunk of a down payment which you won’t see in for a long long time until you sell or refinance the property so prepaying payments and bub way if you do prepay payments ask for a discount so if you

Make six months worth of payments in advance you get a five or 10% discount on those payments if you offer a year in advance maybe you go to 20% discount worked out a little bit negotiating and the last one that we’re going to work on today is additional kilometer rule so if the seller says you know you’re not putting much down here i need some security that

You’re going to pay you can put a deed of trust on another property that you have that has some equity and cross-collateralized so there’ll be one note but there’ll be two mortgages or two deeds of trust recorded against the subject property you’re buying and another property that you own maybe even your principal residence you never or another you know property

Residential or commercial that you have maybe even if you can even pledge mortgage on a piece of roll land that may appraise for fifteen or twenty thousand but never really worth that but at least you know in theory it’s got a a stated appraisal value that you can show to the seller that can be cross-collateralized with the deal so these are just four techniques

There’s a whole lot more of them if you’d like more information on some of the negotiating tactics and other strategies for over dancing visit the store on legal wins calm i hope you enjoy and put to good use these strategies for negotiating owner financing deals

Transcribed from video
Negotiating Seller Financing Down Payments By William Bill Bronchick