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Many people these days believe it’s impossible to buy properties off-market with seller financing. After all, they argue, “why would a Seller sell you their property off-market when they can get an all-cash offer for a higher price by putting it on the market?” But this perspective, while perhaps understandable, is wrong and limiting. In this episode, Jeff discusses five reasons why Sellers may still very much prefer to sell you their properties off-market, even with seller financing, despite the heated “seller’s market.”
I’m hearing it a lot these days. Oh, come on, it’s a seller’s market, you can’t get sellers to sell you their property off market. You definitely can’t get any kind of a deal. You definitely can’t get them to do seller financing. Why would they? Well, in today’s episode, we’re going to dive into those common thoughts in a hot seller’s market and we’re going to discuss five reasons why you know what, they just might simply not be true. So let’s cue up a theme song we’ll jump right into this.
Welcome to racking up rentals, a show about how regular people those of us without huge war chest of capital 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 are 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 a 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.
Hey, thanks for joining me for another episode of racking up rentals. Show Notes for this episode can be found at thoughtfulre.com/e96. Please do us a big favor by hitting the subscribe button in your podcast app. It really helps fellow Thoughtful Real Estate Entrepreneurs to find this show. Onward with today’s episode. So, there are some very common beliefs that I hear a lot out there right now, right? Because at the time of this recording, we are definitely in what somebody would call a seller’s market, right, there’s not a lot of supply. That means if you want to sell your property and put it on the market, there’s not going to be a ton of competition. When there’s a limited supply, but there is still high demand, that tends to drive up prices. You know, in a recent episode, we talked about whether it makes sense to buy in a hot market. I made the argument that it makes sense to continue making good decisions in the moment and that we shouldn’t look at an overall trend and paint it with one kind of a brush and say it’s a bad time to buy that, that would be way too simplistic. Well, the same thing applies. In this case, when you hear somebody say or even the little voice inside your own head says, “nobody will sell me a property off market when they can just list it. They could put up some crappy photos on the internet listed and have 12 cash offers in four hours. Nobody would sell me their property for less than market value. Nobody would certainly do seller financing. Why would anybody do seller financing when they can just get an all cash offer? Very, very quickly and easily.” In short, it’s a seller’s market, the sellers are the ones who have all the control, you can’t get a win in that situation. Well, okay, I’ll be honest with you there, the scarcity mindset side of me kind of wants to say, Hey, I’m glad you think that way, more opportunity for the rest of us who don’t think that way. Right? But that’s not how we roll here. The abundance mindset perspective says, Let’s correct these beliefs, because those are limiting beliefs. The truth is, there are lots of reasons why a seller might still absolutely not only be willing to but want to sell their property off market to you, maybe even with seller financing, even when the market is hot. I’m going to give you five examples. But before I do, I’m going to give you one overall idea, which is that when you make assumptions about what somebody else might consider to be quote better, then you can really shoot yourself in the foot because not all of us see things the same way. My idea of a better path to sell my property is not the same as your idea of a better path to sell your property which is not the same as your sellers’ idea of what a better path to sell their property is.
So, let’s walk through five different examples of reasons why a seller may still very well want to sell their property off market possibly even with seller financing, despite it being a seller’s market. The first reason is what I would guess I would call tenant impact. There are a lot of mom-and-pop owners who, by the way, that’s who I am absolutely recommending that my clients market to and why to market to as well. There are many of these landlords who are pretty close with their tenants. They’ve developed relationships with them over time. A lot of landlords, especially of a certain generation have a mentality that says, I don’t want turnover. So, I keep my rents a little bit low and keeping rents low tends to create longer term relationships. So, that’s more kind of runway, maybe you’d say that the tenant and the landlord can build a relationship, I bought lots of properties from people who were perceived by their tenants as almost like, you know, Uncle Bob, or Aunt Susan, and they just kind of had like a familial type of relationship. So, for those types of situations, the landlord or the seller often times doesn’t want there to be a big, nasty negative impact on their tenants. Right? And that could be in many forms, like they might not want to make their tenants worried by putting a sign out front, they might not want to impose on their tenants by having showings all the time, they might not want to have their tenants be at risk of being displaced after a sale, right? If a new owner comes in and says, well, we’re not going to renew leases with all these people and now they have to go find new homes. I bought a property last week where this was very much a major function of the overall negotiation and what was able to get the deal done was that the owner, the seller, needed to see that I had similar sensibilities about how to treat tenants and they needed to know that their tenants weren’t just going to get kicked out as soon as I bought the property. My sellers even went so far as to credit me at closing for additional money, so that I could give the tenants any rent increase in notices, with a much longer timeline than I would otherwise have in my area, I have to give 90 days, the sellers wanted their tenants to have 180 days notice of any rent increase, and they paid me for the additional 90 days to make that happen. So, back to our key principle, what matters to you is not the same necessarily as what matters to your sellers. In this case, impact on the tenants when a sale occurs can be a major deciding factor for a seller when they look at selling the property on the market, they can’t have as many assurances about how things will be minimized in terms of the impact of their tenants.
Secondly, there are a lot of people who simply like to operate outside of the system, right? They don’t like to see themselves as just another cog in the big machine of real estate and banks and all of that, it’s just a matter of principle to them. They don’t like- by principle- the idea of hiring a realtor to represent them, maybe they just feel like they don’t need outside help to be represented. Maybe they just don’t like the idea of paying commissions, maybe they don’t feel like realtors really earn their work or deserve to get paid the amount of money that they get paid. Their value set simply says I don’t like to do this, in principle, I don’t like to be a part of this system. Thus, I’m not going to be. So, when you sell a property on the market, you are voluntarily submitting yourself to be a part of that system. There are some people who just don’t like to be part of the system. So, in principle, they just prefer to do things themselves and operate outside of the box. That is the listed real estate world involving real estate agents.
Reason number three; capital gains tax. We talk about this a lot on this show. It’s a major driver for seller financing. Specifically, there are a lot of people who are selling properties and you could argue this problem is even exacerbated in a seller’s market where prices are going up. They have massive capital gains. They know that if they sell this property, they’re either going to have to pay their capital gains tax, or they’re going to have to go buy a replacement property. At the same time, they also feel, ‘Gosh, buying a replacement property is not real easy right now, it’s a great time to sell, but it might not be a great time to buy.’ Maybe they just don’t want to be involved in landlord activities and rental property ownership anymore anyway, but they do still want to defer their capital gains. That is accomplished or can be accomplished through an installment sale version of seller financing. They might know that the installment sale version of seller financing is going to go more smoothly in an off-market transaction because they’re meeting directly with their buyers and vetting them and understanding exactly who this borrower will be when they buy their property. So, that’s a great reason why sellers like to sell off market in certain cases and even provide seller financing in a seller’s market.
The next thing is that they care about who owns the property next. In some ways this is connected to my first point- concern for the impact on the tenants. If a property owner has owned this property for a long time and has a personal connection to it or they have poured a lot of their own blood, sweat and tears into it, perhaps they lived in it and raised their family in it, they very well might have an emotional connection to the property and or to the neighborhood. They might have relationships with the neighbors who own the adjacent properties in the neighborhood there. They want to feel good about who their buyer is, this is more common than you might think; you might think to yourself, now everybody’s just focused on getting the most money for their property. That’s not their property anymore so who cares, but a lot of people care, to be honest with you. I would say, this deal that I mentioned to you earlier, this is was a major element. In that deal as well, these people cared about making sure that the next owner of their property was going to provide the same level of care and love for the property that they had for so long. They cared about the neighborhood. I’ve purchased properties, definitely from people who just had strong connections to the neighborhood as a whole. Maybe they have principles around making sure that old homes are not torn down, and new monstrosity properties are built in their place. People have different values around those things and if that’s what matters to them, then selling a property on the market takes a lot of that control out of their hands and makes it feel much more risky to them that they might inadvertently end up selling their property to somebody who’s not going to care for it in the way they would want it cared for.
Number five is simply that many people just consider it easier to deal direct, they like to have their finger on the pulse of what’s going on, they like to sit eyeball to eyeball looking at the other party to understand their audience, just as we like to understand our audience as buyers; sometimes sellers feel exactly the same way. They feel like it’s easier to deal directly. I’ve got a property I’m working on right now where the seller feels like- ‘you know, this property’s pretty new, it’s in excellent shape, I’ve cared for it myself, I know that it’s going to pass inspections. I have no worries about this, it’s going to be a really straightforward transaction, it’s going to be plenty easy to just do this myself, I don’t need the help of a realtor, they just feel like realtors and the system as a whole, puts added layers of complexity into the situation that just don’t need to be there.’
So, here’s the bottom line, here’s what I want you to take away from this episode. Don’t make assumptions, that everybody evaluates their options the same way that you do. Or that if you would do X, Y, and Z in their situation that they too would do that, just because that’s what you would do. The word better is a really interesting word. What is better in terms of an option or a path for a seller is unique to them, because they define better unique to how they see the world. And your definition of better is different than their definition of better, which is definitely different than the next sellers’ definition of better. So, don’t go imposing your definition of better on them, or you will inadvertently kind of shoot yourself in the foot by making these types of assumptions. People value lots of different things and it’s not just price. Now is it safe to say most people care to some degree about price? Yeah, most people would not say well, I care so little about price and so much about my tenants that I’d sell my million-dollar property for $100,000. Price is not always the number one consideration for people and it’s so easy for us to go in with this default mentality that, that is the case, we can really screw things up. So, remember that there are lots of different things that people can value beyond just price; don’t stop marketing. Keep searching for deals because deals are still absolutely available even in a hot seller’s market. Off market deals where you might be able to negotiate great seller financing can still be massive mutual wins for you and the seller, even in a hot seller’s market and when that lead comes in, take the time to understand your seller. Take the time to ask good questions, listen and understand what they value so that you can craft a proposal that addresses the things that are most important to them.
That is it for today’s episode of racking up rentals. Again, show notes can be found at thoughtfulre.com/e96. Please do us a big favor by hitting the subscribe button in your podcast app, rate and review the show; I so appreciate that. Did you know also that we have a Facebook group for Thoughtful Real Estate Entrepreneurs. It’s called Rental Portfolio Wealth Builders and we’d love to have you over there just type group.thoughtfulre.com into your browser and the magic of the internet will take you right to that page where you can hit the Join button. If you liked this episode, please take a screenshot of it and post it to Instagram and tag us we are @thoughtfulrealestate all spelled out.
I will see you in the next episode. Until then. This is Jeff from the 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 profits.
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