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When Your Sellers Don’t Want To Do Creative Financing

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Here’s the scenario: You want to buy properties and do deals using creative financing…but you can’t seem to find any Sellers who want to do creative financing. The truth is that each day, hundreds of creative financing deals get done…yet NONE of the Sellers wanted creative financing. So how does it work? In this episode, Jeff discusses what Sellers REALLY want, and how you can give it to them and still do the creative financing you want.

Episode Transcript

The very best real estate entrepreneurs use a lot of creative financing in their business. Yet on the other hand, literally zero of the sellers that they buy properties from want creative financing. So if nobody wants creative financing, yet all these successful investors are getting it done all the time, what’s the deal? How does that work? In today’s episode I’m going to explain. Let’s cue up the theme song. We’ll dive right into it.

Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs or just looking for quote “motivated sellers” to make lowball offers to. You see, we are people-oriented dealmakers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.

Thank you for joining me for another episode of Racking Up Rentals. Show notes for today’s episode are at www.thoughtfulre.com/e42. Please do us a big favor, do yourself a big favor by hitting the subscribe button in your podcast app. It really does help other fellow thoughtful real estate entrepreneurs who are stumbling around out there in the real world looking for us, to find us. Okay, onward. So, I was in this Facebook group the other day, not our Facebook group, Rental Portfolio Wealth Builders not that one, but a different group of real estate investors, and I was looking for questions that I might be able to answer and help people out a little bit. And I saw somebody post. And he said “Nobody in my area wants creative financing. What should I do?” Right. And so, he’s kind of looking for, you know, something else he can do instead because apparently, his market is totally tapped of people who want creative financing, and there aren’t any left. So I had to respond to him. And I said “You know, I think you’re exactly right. Sorry to say it. You’re right. Nobody wants creative financing.”

And then I went on to explain something though. What these people want is not creative financing. What they want, is what they want. They want whatever the heck they want. That might be a trip around the world, it might be relief from a situation it might be peace of mind about this might be changing how they spend their time, it might be a new trailer, it could be anything. They want, what they want. Creative financing, is simply a large toolbox of options to help you deliver what it is that they want. Creative financing is not a means to — it is a means to an end, it is not the end, in and of itself. You know, there’s a really well-known little analogy that I think is so helpful. I’ve used this a million times explaining things to people that — in the United States, there are 24 million quarter inch drill bits that are sold every single year. But you know how many people wanted a quarter inch drill bit? Zero. 24 million drill bits sold. Zero people wanted a drill bit because what did they want? They wanted a quarter inch hole; they didn’t want a quarter inch drill bit. They wanted a quarter inch hole. And so what that means for us as thoughtful real estate entrepreneurs is that we need to put our energies into focusing on understanding as well as we possibly can. what the other person wants. What are they trying to accomplish. And frankly sometimes, the other person, the seller doesn’t even know perfectly themselves. They have a general sense, but maybe they can’t totally articulate it. So sometimes our job is actually to kind of help them even solidify exactly what that is. But our job is to understand exactly what the other person wants, and then dig into our toolbox that includes a lot of things but especially creative financing options, to figure out how we can use those tools to help them get what they want.

Let me give you two simple examples from my own life and my own portfolio building efforts.

The first example is a lady named Diane and I came across Diane several years ago actually very, very early on in my full-time real estate entrepreneurial endeavors, and she had a small house in kind of a more affordable, maybe see kind of level neighborhood in my city. And when I first met her, I asked her a few questions about, you know, lots of things. But I asked her a couple questions to assess whether she would be open to receiving payments from me on a promissory note, because I knew that she owned this property free and clear. And Diane said no at first. She said ”No, I, what I really want to do is I want to take the cash from this. And I want to pay down, pay off actually our primary residence, because that’s just, you know, it’s a burden on my mind. And that’s really what I want to do. So I, I want the cash.” So as we continue to talk, I said, “Thank you for sharing that. I totally understand.” I asked her a few more questions. And I understood kind of what her interest rate was, and her balance on that other loan and whatnot. And so I went about my business putting together a proposal that was on target for what she said. And in this case, she wanted to be cashed out. But as I was putting together my proposal, I was still doing the work and the analysis to figure out, well, how could this deal be structured in a different way? What if I was able to make payments to her over time? And I looked at it, and I said, Well, you know, I know what interest rate it is that she’s trying to cash out right now. What if I were to make a proposal that involves a higher interest rate, so that she actually would be making more money by receiving my payments than she would be saving if she were to pay off her other debt. And so I went back to her at the time, it was time to make the proposal. And I gave her a proposal that matched exactly what she told me, she was looking for a cash type of, you know, I’d go get a loan, or we’d bring cash to the table somehow, and, but she would get cashed out all at once. And I said, but you know, Diane, let me give you some free food for thought. And by the way, I like to use that line a lot. Let me give you some free food for thought because I was already brainstorming this stuff anyway. And I thought, well, it only takes another couple seconds to write up a scenario just for your own consideration your own food for thought of what it might look like if I did make payments to you over time. And I gave her that proposal and involved a higher purchase price and involved an interest rate that was higher than I knew she was paying on her other property. And even though she had said no, I said, Diane, Look, I know you said, you don’t want to do a promissory note. And that’s totally fine. I was already doing this brainstorming. Anyway, here’s some free food for thought. Let me know what you think about it. But let’s focus on the cash offer that you asked me for. And as it turns out, my rationale and my approach to showing her this second proposal that involves seller financing in a very non-threatening kind of way, really resonated with her. And she ultimately said, Yeah, you know what, I would like to do this, you’re right, this is better for me than — than paying off my existing primary mortgage. So she said yes. And we did that loan, and I paid on that loan for several years. And then she got paid off. And it worked out really well, even though at the beginning, she said no, I don’t want to do that.

Because I really understood what she was trying to accomplish, which in this case, I would say she was trying to maximize kind of her return, and she was gonna say pay off a 4% loan. But if I could pay her 5% that actually would maximize her return better. And so I gave her something that better met her real objective the thing she wanted, and then she said yes to it. And I need to point out that this promissory note seller financing situation is exactly what I wanted. But I didn’t accomplish that by telling her what I wanted, or trying to kind of force it in there. I listened to what she wanted. And I found a way to give her what she actually really wanted. But in a way that also gave me what I wanted, but it wasn’t framed around what I want it’s framed around what she wants. Let me give you a second example.

Much more recently, a gentleman we’ll call Brian. And Brian received a letter from me about a single-family house he owned actually, incidentally, now that I think about it, not too far from Diane’s property overall, but several years later. And Brian told me, he wanted to sell this property the tenants had left and he felt like this is a natural time to go ahead and sell it. And it was in the spring and he wanted to take the proceeds and do a 1031 exchange to buy another different property outside of the city and the city where we live. Just got a lot of changes going on with landlord tenant laws. And he said he felt like it’d be better to be outside the city and he wanted to do an exchange into a property outside the city. And so as he and I got to know each other more, which is a big, big, big important part of the equation. I asked Brian Hey, so is this is it a specific property you’ve got your eye on? Or kind of a, maybe a category of properties you have your eye on? And He really said no, not so not so much. And then I kind of had the idea that I don’t know that he really wants to buy something else. And so I asked him the question, Brent, is it that you want to buy a property outside the city? Or is it that you don’t want to pay capital gains tax when you sell this house, and he said, it was much more of the ladder. And in fact, he was wanting to take about $50,000 of his proceeds from selling this house, and use it for another project, repairing another home that He has for his own personal use. And so I thought, Okay, well, that’s interesting. So he doesn’t really want to buy something else. But he does want to defer his capital gains as much as possible, he does want a little bit of cash in order to do this other project. So let me now structure a proposal involving creative financing, in this case, also a promissory note and a trust deed. And I will offer to give him the $50,000 down that he needs to do his other project. And then I’ll make payments to him over time and will structure it in a way such that a large part of his capital gains tax bill will be deferred into the future using this installment sale structure, which I know is maybe more advanced or time on a different episode, we’ll talk about that. But the point is, I knew what his real objective was, was to get just enough cash to do this project, and then to defer his capital gains. And he felt like the only way to do that was by doing a 1031 exchange of most of his funds into another property in a different location. But I helped him see that there was a different path to that same objective. And again, that path better aligned with my own goals, but it wasn’t about me, it was about him, and what he wanted and what he needed.

So the next time you are out there looking for creative financing, opportunities, seller financing, and you find yourself feeling like nobody really wants this here. Remember, you’re right, nobody wants that. Nobody wants the quarter inch drill bit what they want is the quarter inch holes. And if you can develop a relationship enough with them to get to understand what they really want get to a high level of clarity of what their quarter inch hole is, then you can get out your toolbox of creative financing options, and you can design a transaction that will give them what it is they want using the tools that you have available to you at your disposal.

That’s it for today’s episode of Racking Up Rentals. I hope you found this thought provoking gets your wheels turning again, show notes for today’s episode are at www.thoughtfulre.com/e42.  Please do us a big favor by hitting that subscribe button in the podcast app. Please take a second to rate and review the show just give us an honest rating and a review. Did you know also that we have a Facebook group for thoughtful real estate entrepreneurs. It’s called the Rental Portfolio Wealth Builders. And we’d love to have you join us there. You can just go to group.thoughtfulre.com and it’ll take you right to that page.

If you liked this episode, please take a screenshot of it post that screenshot to Instagram and just tag us. We are @thoughtfulrealestate. Well I will see you in the next episode. And until then, this is Jeff from a Thoughtful Real Estate Entrepreneur signing off. Thanks for listening to Racking Up Rentals where we build long term wealth by being a win-win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profit.

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