Episode #10: Seller Financing, the Ultimate in Thoughtful Real Estate Entrepreneurship
Seller financing is the ultimate expression of the Thoughtful Real Estate Entrepreneurship approach, because it invites–and requires–a relational, thoughtful approach to working with sellers. By honing and mastering Seller Relations skills, Thoughtful Real Estate Entrepreneurs are able to facilitate the conversation about seller financing that leads to an incredible win-win transaction. In this episode, we discuss the many customizable elements of seller financing, why Thoughtful buyers like seller financing, and many of the reasons Sellers can find value in seller financing as well.
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Full Episode Transcript
This is Jeff from the Thoughtful Real Estate Entrepreneur. Welcome to episode number 10. That’s right and double digit episodes very exciting little milestone for us here at Sleaze-Free Real Estate Investing a show for those of us who never felt at home, and the We Buy Houses crowd. So in this show, we take a stand against what we call the little graph approach, the mainstream guru seminar distressed seller approach that ends up giving real investors a slimy reputation. Instead, we discussed the strategies, tactics and philosophies that we call the thoughtful way. And enlightened approach to real estate entrepreneurship that focuses on constantly sharpening the sophisticated real estate entrepreneurs, three most critical capabilities. Number one, seller relations skills, number two, deal architecture skills and number three, opportunity vision. When all of these capabilities are successfully emotion, you can make an excellent living today and build long term wealth while creating value for everybody that you touch along the way. So show notes for today’s episode can be found at www.thoughtfulre.comE10. Please do yourself and us a big favor by hitting that subscribe button and your podcast app. And that way you’ll know next time we release it episode and every time thereafter very promptly. So in the last episode, we discussed the five myths of seller financing. So go back and listen to that one. If you haven’t already. Today, we’re going to be building off of that by continuing the conversation around seller financing. We’re going to talk today about what seller financing is from the perspective of trees. Whereas let in the last episode, we discussed what it’s not by addressing those five minutes. But first, as always a little bit of food for thought. Because as Thoughtful Real Estate Entrepreneurs we like to you know, well think we like to feed our minds with things to think about. And here is what we’re thinking about today. I’m thinking back to a little story that I wanted to tell you that took place over the course of several years and came back to my mind just the other day, I was talking to a friend of mine. And it sounded like there were some interesting things going on in his life. So we agreed to get together and have coffee. And I said, Hey, just tell me where you want to go at all. I’ll meet you there. So he named XYZ coffee shop. And I thought to myself, Oh my gosh, that place of all places. And here’s why. I’ve lived within, say, quarter of a mile of this coffee shop, either side of the coffee shop for probably 15 years. And I remember when it first opened, it was a different place even at the time, it’s changed hands since then. But I would go in there all the time. And I would work because I was self employed. And I take my laptop in there. And I’d sit there and I work. And there was this guy who was there all the time, his name? Well, we’re going to call it Jerry. And Jerry was always there working and he was just somebody I saw all the time. So we kind of struck up a conversation and just develop like a light and friendship over the coffee shop. And he eventually started working there to get a job there as a barista. So fast forward several years, and my life changes my business changes. And now I’m a full time real estate entrepreneur. And one day, I get a call from a seller and I start talking to the seller, and we get pretty far down the road in our conversation, actually seller financing conversation, incidentally, as well. And I get to the point where I get a copy of the leases. And the lease on that building is for this name that I recognize Jerry. And I realized, oh my gosh, this is the same guy. As I I kind of was acquainted with, like lightly friends with. And I thought, well, this, this is a little bit interesting could be awkward, because one of the reasons I’m buying this place is that the rents are way below market. And if I were to get them up to the market rates, that place would be worth a lot more and it’d be a nice cash flowing rental. And so that’s pretty much what happened, we proceeded to buy the place. And I reached out and I said, Hey, Jerry, this is just a crazy coincidence, but I have bought the house that you live in. And we need to adjust the rents to market and, and that in his case met going up a lot, like nearly twice. And so he he wasn’t too happy about that. But I have this philosophy that in my business, I have to very frequently give people news that they don’t want to hear, you know, tenants, sellers, and due diligence findings, all sorts of things like that. And while I can’t always give people the news that they want to hear, I can absolutely, always deliver it with empathy and respect. And so that’s what I tried to do. And I and I tried to do that very much in this case, too. But the message was so not wanting to be heard that that the way that I delivered, it didn’t really help. And so we raised the rent, they decided to move out, we then decided to sell the property. And then the person who bought the property actually scraped it off the face of the earth and rebuilt another house there. And so then later, I remember getting an email from Jerry saying, Oh, I hope you’re happy with yourself. Now this house that we love, not only did you kick us out, but you know, you’ve turned it down, you’ve built this ugly monstrosity. And of course, I didn’t build it. But in his mind, it was all it was all our doing. And I have to be able to understand that. But what this got me thinking about was the concept of victim mentality. victim mentality is a very unbecoming type of mentality. And Jerry had it in this case, you know, he, in his mind, he was thinking, you know, why is this happening to me? Why are you doing this to me? You know, instead of thinking, Wow, it’s amazing that we had rents, that was half of what it should have been for several years, he was focused on, you know, the the negative change in his perspective. So Jerry had a victim mentality there and it was, you know, it’s, it’s not a good, it’s not a good look. But it also made me wonder, well, maybe I need to turn the mirror back at myself to Are there times when I have victim mentality? And the answer is yes. And I mean, we’re all human. So it’s, it’s easy to act human when you are a human. And it made me Just think about when is it that I have a victim mentality? What do I do about it? And I think the first step is simply to identify when it’s happening, because you can’t do anything about it if you are feeling victimized, subconsciously. So I focused on just trying to like, look in the mirror sooner and faster to figure out when I’m feeling that way. Because then and only then can I really do anything about it. And then the second step is I just try to focus on what is it that I can do that is within my power, what what am i empowered to do to take action to kind of resolve my situation or make the most of what is taking place. But I think victim mentality is best defined by the words to me, you know, what’s happening to me. And instead of using those words, to me, I think the better words to use are what is happening for me that I can control myself. So that is today’s food for thought, Hey, everybody, just a quick interruption to tell you about something we’ve put together for you. I don’t know if you’ve ever heard this funny expression, but a powerful one that says you can’t read the label when you’re inside the bottle. Well, real estate investing is kind of like that, when I got started, I was just reading and listening and studying everything I possibly could and taking massive action based on that, which was fantastic. But it took a long time, like a long time for me to realize that so much of what I was learning was actually pretty low brow, I just didn’t have that perspective. And you know, you might be in the same kind of position right now. It’s very difficult to know. And to see your own situation, clearly, we’re right in the middle of it. So we’ve created a free PDF guide, available for download. It’s just for you guys as listeners to Sleaze-Free Real Estate Investing, not available to anybody else. And it’s called Five critical mistakes that make most real estate investors accidentally low well, so you can go get this right now if you’d like get this free PDF guide at pod pod pod dot thoughtful r e.com dot five full rd calm, go grab it, and see if you are making any of these five critical mistakes. Alright, moving on to the main course of today’s episode, our continued discussion on seller financing. I just love this conversation I kind of think about all the time anyway. And so it’s like why not go ahead and record a few episodes about this topic. So today, we’re going to sort of take the 180 degree opposite approach and the last episode where we talked about kind of shattering some of the myths of what people think seller financing it. So we’re talking about really what seller financing is not in the last episode number nine. And instead today we’re going to focus on really what it is from the perspective of trees, Thoughtful Real Estate Entrepreneurs. So on a timely side note, I came across some journalists just in the last week or so from a website called Rockstar finance. And they reached out to me and asked me to do an interview about this exact topic. So just real time like doing a lot of thinking and talking about this topic of seller financing. And as I observed myself explaining the concepts to them. You know, I realized that this topic of seller financing, the way that Thoughtful Real Estate Entrepreneurs do it is it’s really both an art and a science. The science is in the mastery of the technical nuts and bolts of the tools of seller financing, which is a long list, you know, promissory notes, deeds of trust, releases with options to buy, there’s lots of different
sort of technical tools that you need to be competent with. But then there’s the art side, and the art is all about the seller relations. It’s all about the mastery of how and when to use these tools, right? It’s great if you understand the tools, but the application of the tools into the context of this situation is very subtle, and it’s very nuanced. And it’s completely different from situation to situation. You know, when when do you bring up seller financing? What are the clues you listen to to see if it is relevant for the sellers trying to accomplish? At what point do you actually proceed with a recommendation that you guys discuss that? How do you explain it when you do? How do you frame it in a way that is going to help them see how it could be really beneficial to them. And that is all about the art of seller relations. So we’re going to kind of touch on some of the elements of that art. today. If there was a theme in the last episode number nine is, as we looked at those myths of seller financing, you could probably title that theme as assumptions and generalizations and the risk of assumptions and generalizations because we tend to look at seller financing and say, Oh, well, here’s when it works, here’s what it applies. Here’s why it happens. And the truth is, of course, that the the situation for each seller is so different and nuance that there are not totally consistent generalizations we can apply. And that’s what makes it so risky. So today, our theme is really the exact opposite of assumptions and generalizations. And today, our theme is that seller financing is about uniqueness, and customization. Alright, so what is seller financing from the perspective of a tree? How do we sort of quote, define it. So this isn’t like a dictionary definition. But this is the way that trees tend to look at it. And so it’s really defined as the seller participating in some way in the financing of the purchase of the property. And there are lots of different ways and structures that can take place, and we’ll talk about some of those, the seller can participate partially. In that financing, they can participate fully, or anything in between and in probably in practicality, most situations are somewhere in the middle between partially and fully. And there are lots of different structures for doing this. And today’s episode is not a technical training, like there’s a lot to know about this. And it’s really not well suited for a podcast episode to train you in depth on all of these things. But what today’s episode is about though, is expanding your perspective on what seller financing is and how it fits into your business. As a Thoughtful Real Estate Entrepreneur. Whenever you buy a property, one way or the other, you are buying the property and you’re buying financing. Okay, even if it’s your own cash that you’re using, in part or in full for a purchase, you are buying that financing. In that case, you’re buying it from yourself because your cash, your capital always could be doing something else. So there’s an opportunity costs for you to put it into a particular deal. So you’re either buying financing from an outside party, like a bank, or a private individual or your by financing from yourself. Every time you do a transaction. And in a seller finance transaction, you’re buying some or all of the financing from the same person that you’re buying the property from. Now that we’ve determined our definition, and how we want to think about seller financing, let’s talk about why seller financing is a thoughtful process in and of itself. This is why I love seller financing is it’s basically impossible to really craft a seller financing transaction without getting to a level of depth in the conversation with the seller. And this is where your seller relations skills kick in. And being able to have a deeper conversation with the seller about what they want and need to accomplish is what a tree wants to do anyway. And so by its very nature, and seller financing takes the purchase and sale conversation. And it’s like it kind of makes it three dimensional. Whereas you know, most conversations about properties, especially with the lowbrow approach are very one dimensional, it’s really about price, and not a lot else. But when you start to talk about seller financing, you can’t help but make that conversation more three dimensional, going well beyond just price to really help them understand all of the things you can do all the ways that you can actually help them accomplish what it is that they are trying to accomplish. So I want to give you a quick analogy, because I think this is going to be helpful. Think about clothing, and the different ways that you can buy clothes, in different stores and in different just situations. So some stores. So close that are sized, small, medium, large, extra large, right. So this is a pretty generic, open, loose kind of way of going about it. And when the clothes are small, medium, large, extra large, that those are full of assumptions, right, if you grab us a large shirt, it sort of is assuming that you’re if you’re a large through the belly, that means you’re also correspondingly large through the chest or the arms or, or whatever. Or that if you buy media pants means you have a medium waste means you must also have medium length legs well, so it’s full of assumptions. And we know all from buying clothes that are just simply small, medium, large, extra large, that that’s not usually entirely the case that those assumptions are not usually totally true. There’s stores Of course, it’s so close in common sizes, right? So maybe for women, you’ve their pants, size five, or a dress, that’s size eight, for men, it’s pants that are 3432, you know, waste and leg length, or shirts that have 16 inch next. So there’s fewer assumptions in these cases, but there still are some right? It assumes that if you have four men, you know, a 34 inch waist 32 inch length of legs, it makes some assumptions around maybe like the size of your quads, and, and those types of things. And those some of those assumptions are true. So fewer assumptions being made a van the small, medium, large, extra large situation, but still, it’s not totally customized just to you. But then there’s tailors and Taylor’s design and cut clothes just for your various measurements. And so if you’re going to have anything made by a tailored right, you know, a common example, of course would be like a suit, you have to have the measure you carefully. And the tailor knows that there’s a lot of different places on your body, and ways of measuring you that they have to take into account if they want to. So you something that really is going to fit. And they know they can’t really make any assumptions, right? They know they can’t make any assumptions about the size of your, the circumference of your biceps, just because you know you have a certain size neck for instance, in the case of like a man’s dress shirt. And so Thoughtful Real Estate Entrepreneurs basically take pride and being like tailors and they like delivering things that fit the seller really nicely. So trees are check our Taylor’s in seller relationships to the degree that the seller will let them be so sometimes the seller, you know kind of pushes back and keeps the the real estate entrepreneur at arm’s length, which is sort of like saying learn and I don’t don’t get your tape measure outlet. Just tell me what do you think? Extra Large, you know, 3634 size 10? What do you think? And the Thoughtful Real Estate Entrepreneur, though is always trying to measure and measure and measure in their own way so that they can deliver a proposal that is as tailored to that seller as possible. lowbrow investors totally comfortable and content offering small, medium large type of approach. But trees are expert tailors who use their selling relations skills to lead a conversation that designs a transaction that is going to fit both the sellers needs and the buyers needs as well. So seller financing and meaningful dialogue really go hand in hand, you really can’t craft a seller financed the transaction without having a deeper conversation about the sellers desires and their needs. And conversely, or inversely, you can’t have a deeper conversation with the seller about their needs and desires. without at least accidentally uncovering some of the information about whether seller financing is a possible opportunity. That’s an interesting thing. So you can’t craft seller finance transactions without deeper conversation. And you can have a deeper conversation without uncovering whether there are seller financing opportunities. So let’s take a moment and break that down because that’s a really interesting dynamic. So the first part of that sentence as you can craft a seller finance transaction without having a deeper conversation about the sellers desires and needs. There’s so many customizable elements to a seller finance transaction that you have to understand the seller in order to pick the right elements. So if for example, the seller says I want to do seller financing, you don’t just say okay, and then write it. You wouldn’t even know what to write up because that’s way too broad and loose of a comment. So, first we had, you know, you can’t craft a seller finance transaction went out having a deeper conversation about the sellers desires and needs. And now you can have a deeper conversation about the sellers desires and needs without uncovering seller financing opportunities. Okay, so if you’re getting to a greater level of depth with a seller. Even if you’re not intentionally trying to turn over stones in a conversation that are specifically looking for seller financing, even if you’re not doing that if you’re getting to a greater level of depth with that seller, you’re definitely going to end up
gathering information and insights that will give you a better idea of what will work for them. And if seller financing is part of that picture of what could work for them. So let me give you an example of that. You’re sitting in the seller’s living room and you’re, you’re talking if you asked a few questions and the sellers comfortable with you, and they’re really opening up to you about their situation, why they’re selling what their goals are, what their concerns are, what their desires are and their parameters are, and you’ve got your ear trained in a way such that you will be able to determine yourself without even directly having a conversation about seller financing, you will be able to determine the viability of potential seller financing options. And then you’ll be able to either recommended or not recommended. Based on what you have learned from them. And so in this case you’re not even directly having a conversation about seller financing but you are getting to a level of depth with the seller, and you’re going to start to know yourself whether what you’ve learned from them is aligned with certain seller financing strategies that can be good way to help you get where you’re going and get them where they’re going. So let’s take a moment here and talk through some of the customizable elements, and some of the considerations that go along with each of these customizable elements, right, so this is like our. I realize I’m mixing a lot of different metaphors here but this is like the list of all the options at Subway right bell peppers, no bell peppers. Oh you want hot peppers great we’ve got two or three different types of hot peppers, you know, all these different things different types of mustard different types of Manning’s. Let’s go through our list of all the things that you can customize another analogy here back to our tailor tailor metaphor is what are all the different things that you might measure and take measurements on if you are going to be tailoring a suit before your seller or last but not least another one of my favorite analogies if you think back to one of the first couple episodes of Sleaze-Free Real Estate Investing. I talked about the the idea that a transaction, through a thoughtful, Real Estate entrepreneurs perspective is kind of like, if you picture the mixing board in like a sound studio and you’ve got your audio engineer, sitting at this table and she’s sitting there she’s got like 1000 dials in front of her and she knows what each child does and exactly how to adjust each style to get the sound that she and the producer want to ask. So let’s go through a list of what some of those elements are that you can tailor some of those dials that you can adjust to get where you are trying to go with the seller. So the first the biggest broadest question is what is going to be the right structure for this seller financing because seller financing, you know, as I mentioned to the journalists from Rockstar finance the other day is not a thing a seller financing isn’t a thing it’s more like an umbrella of things with lots of different paths within it. So, in terms of structure, you might start with a conversation that helps you understand broadly which path might make the most sense. You know, is it a note interesting is, is it a land sales contract or contract for deed. Is it a lease was the option to buy. Is it a purchase subject to the existing financing, maybe also with a promissory note. So there’s a lot of different paths this can go down, and some of the things that will determine which path you go down, will be, how much debt is outstanding on the property. What is the nature of that. When should title transfer from the seller to the buyer. I’m engaged in a conversation right now with a seller who has some underlying debt on the property she wants to sell that’s really pretty remarkable extremely low interest rate. And so we can’t help but think, right. How can we keep this debt in place and make this part of the plan because the quality of that loan and the low interest rates and whatnot are is pretty hard to replicate and does create a lot of value for me as the buyer and will create value for her as the seller if she can leave in a place because it will, it will help me pay more for her property if there’s this amazing loan that comes with it. So the first big deal with lots of little dials underneath it is what is the general structure for the seller financing transaction that you might use next downpayment. Well, how much is the down payment. And is there outstanding debt on the property that will be cashed out with a down payment. Are there other leads to be paid off with the downpayment maybe there’s back taxes or construction Lee, how much of a down payment is enough. Is that decision going to be based on existing debt that needs to be cashed out. Is it going to be based on the seller wanting the buyer to have a certain amount of skin in the game so that they feel secure that the buyer side just kind of walk away is the downpayment going to be calculated based in part on the seller practical, having a practical need for cash right maybe they’ve got a $10,000 credit card bill that they want to pay off for, they’ve got a $25,000 car that they want to buy or something along those lines. And another huge consideration for the down payment, and how it gets determined is the tax implications, especially if the seller is selling the property with seller financing primarily to defer capital gains. Well then they don’t want to get too big of a down payment in many cases. So, even within the topic of a down payment. There are lots of considerations that go into deciding mutually between the seller and the buyer, how much should that downpayment be, how much does it need to be another element is the interest rate on this note. What is the interest rate going to be is that interest rate going to be the same throughout the whole course of the loan or is that interest rate going to change over time, when does this interest rate kick into effect and interest begins accruing lot of different topics, just within the category of interest rate. How about payments. Well, are the payments. However, the payments calculated. Are they interest only payments. Are they amortized over a certain period of time based on a particular amortization schedule. What happens if the borrower the buyer wants to pay more than what is do, is that allowed, and that’s another little dial that can be that can be adjusted. When are the payments do when is the first payment due. When our payments do consistently up for that. I have a loan for instance I have a couple loans with one particular private lender. And it with these loans, the interest on the loan begins accruing at closing, which is fairly standard. But, we often have no payments due for five months. And the reason is we’re using this loan for rehabilitating a property renovating it and it just takes a little time before we can put new tenants in there. And this private lender. This is not a seller loan but if the principles the same this private lender understands that and says no problem, you can pay us for those five months of interest that’s accruing but you’re not paying you can pay that upon the cash out of the note so interesting as a Korea closing but no payments are due until the end of the fifth month. Are there any one time payments that or do I have a note with a seller, that is an interest only note but every December, I owe them $25,000 which is applied directly to principal so when I pay them that $25,000 the outstanding principal balance goes down and now the interest only payment goes down as well because there’s not as much of a principal balance that that interest is being calculated on how will the payments be delivered. Are you going to mail a check. Are you going to set up a direct deposit, with the seller right into their bank account. Perhaps there’s a collection company like an escrow type of collection agency that is auto demining your payment through a CH and is depositing it automatically into the bank account of your lender, that’s what I do, and many of my cases. All right, let’s talk about term. Or in other words, term is sort of like duration so when does Islam do. Is it is it shortly. Is it a longer. Long time out exactly how long is the is this alone in this program going on. Is there a right that either party has to extend the term. You know I have notes where, if I want or need to extend my note past the term that I can do so but there’s a fee that I pay what what if the seller wants to extend the term. What happens if the note is paid off early, is that allowable. Is there a penalty for that. What happens if the beneficiary dies before the note is paid off or their co beneficiaries are there successor beneficiaries. What if the beneficiary wants to sell their note before they get paid off, so that they can create liquidity from this accounts receivable that they have. Instead, a lot of questions a lot of little dials under the bigger dial of term. Well, let’s talk about collateral there’s always a lot to say about collateral. A real estate loan is collateralized by something tangible so what is the collateral for this note. Does the collateral have to stay the same throughout the whole term, so if it starts being XYZ property doesn’t have to stay XYZ property, the whole time. If the answer’s no. Well what are the rules by which that collateral could be changed. What are the criteria of a new piece of collateral. That would be acceptable. Does that new piece of collateral have to be a single piece of property or could it be multiple who gets to decide if this collateral is changing. Is the lender covered on the insurance for the collateral. Well what lien position does the borrower have on the collateral, and the lien position
that they may have on the collateral right now. Does it have to stay with that exact same lien position or not. So the bottom line here is that there are a lot of customizable terms and again, this is not meant to overwhelm you or intimidate you, though it does take technical competency and some studying to get all of this stuff down. But the point here is this this is what I want you to remember. You have so much that you can work with. To make it perfect for both parties is so many dials on that mixing board that you can tweak and adjust, just to get the right sound that is music to both your sellers ears, and to your ears, and the number one way that you can improve your ability to do this is by mastering your seller relations skills because seller relations skills are what allow you to guide the conversation in a way that explores all of these customizable elements and makes thoughtful decisions about how each little dial should be adjusted to get the tone, just right. So let’s talk a few minutes about some of the benefits of seller financing from the perspective of a Thoughtful Real Estate Entrepreneur. Well, one of the most probably obvious and prominent ones is that when you don’t have to go to a bank to get a loan. That’s usually a good thing. That’s usually going to be faster. It’s usually going to involve less what we call you know brain damage. Answering a lot of questions, suffering a lot of bureaucracy. Having your request to go through like a loan committee. Having a bank’s process for underwriting, and all the strictness that might come along with that, all of their rules, all their paperwork, etc. even going to a private lender that’s not a bank is usually more work, and more difficult than just working with the seller because you have to then get the private lender ramped up in terms of thorough knowledge about the property and left them underwrite it, and the project and whatnot, whereas the seller is already intimately familiar with the collateral. They’re intimately familiar with the conversation. The rest of the conversation is going on between you as the buyer them as the seller. And there’s really no educational curve that has to take place in terms of evaluating what you guys are discussing. Other benefits from a thoughtful buyer’s perspective, customizable terms with the seller. You can just, you can just decide whatever works for both parties. Everything is negotiable. And everything is customizable on that big mixing board, every dial is something that the two of you can play with adjusting a bank on the other hand, well, they’ve got a program. They’ve got program it’s well defined, here’s exactly how it works. And there’s very little negotiation. I mean, can you imagine going to a bank and say, Okay, well I like interest to begin accruing this day, but I don’t want to payment to happen until this day, I want those payments to be interest only and then every October 14. I want to give you an extra $12,000 of principle only. And then I want the right to the to extend the loan for a point for five years if I want to. And it just it just doesn’t happen, but with a human to human conversation where you as a regular person, or the borrower and the seller as regular person is the is the lender, then everything is something that just the two of you can agree to that makes things infinitely more flexible also as the borrower. And one thing I don’t want to gloss over is that they’re very sincerely is a difference in the feeling of working with real people as lenders and banks, and I personally feel so much better knowing that I am contributing to the lives of real people, when I make my payment each month, not just laying the pockets of a big bank, and that is, is it really truly an important byproduct of this whole thing is that it’s like real people helping real people, and I love knowing that I am funding somebody to retirement. Just as I hope will happen for me when I’m in that position. Let’s talk about some of the benefits from the seller’s perspective as well. So in other words why sellers, often like seller financing or some of the things they tend to like about seller financing when it is a fit for them. First is an income stream, you know if you’re buying a property from somebody that was a rental, they probably had it as a rental because they like income. Well if they sell the income stream, and then it just dries up that puts a hole in their monthly cash flow. Well, selling the property with seller financing is a way that they can continue to have that income stream. It also delivers them reasonable returns, especially in a low interest rate environment like we have right now. If these folks got a bunch of cash and walked down to their local bank you know the beginning, like maybe a 1% interest rate which is not going to go too far in terms of creating income for them. And so if they can have a loan to you at four or 5%. That is so much better for them in terms of maximizing their return without taking on too much risk which is the next point which is that when you are in the lender of on a piece of property you have tangible collateral you know you can drive by and you can see that it’s still standing there and you can you can touch it and you know that if you were to have to foreclose on the property that that piece of tangible collateral has intrinsic value, because it is something that people want it to live in that piece of tangible tangible collateral is also insured, and you are listed as a last page on that insurance policy. Sellers tend to like the fact that they’re kind of getting customer service from a regular person which is kind of a fancy way of saying the seller can call me on my cell phone, anytime, and talk to me. They know that I will pick up, and I’m a regular person, rather than an institution where you have to call the one 800 number and talk to a different person. Each time. One of the big big things that is a driver for most of the sellers, I work with, is that they want to use seller financing as a way to defer their capital gains on the sale of a piece of property without needing to do a 1031 exchange. So, by the, they might be at a point in their life where they want to sell the property. They really don’t want to pay the game but they also don’t want to just trade one responsibility for another responsibility by doing a 1031 exchange. And so we have worked together many times to structure seller financing transactions in a way that is not identical to 1031 exchanges but is similar in the spirit of what it accomplishes by pushing a lot of their gain into the future. A lot of times sellers just know that being the bank is generally a good thing you know they’re there is a reason why it’s banks who own tall buildings downtown on corner lots. Because being the bank is a good program and so they know they can make money on this sale their property right it’s a bought it for 300 and they’re selling it to you for 500 that’s great. But if they can make money on the financing, as well, then that’s a much bigger win for them financially to. A lot of times it means a seller can actually sell their property for a higher price. Because if they’re selling the property and offering to provide the financing that. It’s more value for the buyer and the buyer than an exchange can often pay more for the property than they would be otherwise if they had to go find outside financing. And last but certainly not least, for some sellers, they prefer seller financing, just a matter of principle. Maybe they’ve done it before. Maybe their family or their parents have done it. Maybe they just don’t like the idea of letting National Bank, collect interest when they could be collecting interest for just like a lot of sellers have a principal issue, even on moral or ethical issue with not selling through real estate agents, you know they can’t get past the idea of paying a real estate agent to do something that they feel they’re competent enough to do the same kind of thing applies with seller financing sometimes they say, this is just something that I don’t I don’t need somebody to go find another source of financing, I can provide it it’s a bigger win for me and it’s a matter of principle to them that way. So, sort of, in summary, with all this guy’s is, is that seller financing, in my opinion, is one of the ultimate expressions of the thoughtful, real estate, entrepreneurship approach. It is so handcrafted and requires being so in tune with the seller, that it just really nicely aligns with the thoughtful approach. One of the the journalists I spoke with from Rockstar finance asked me a question. How do you find seller financing leads, you know. And my response was, this, you can certainly go out and search for these candidates and you can create a list that you send letters to that you feel is going to have those candidates and I think you shouldn’t do that. But the bigger point I wanted to make to them is that if you, if you spend time and energy learning the art of recognizing the opportunities that are right in front of you. For seller financing. That’s going to be the best use of your time. Because those opportunities are right in front of you, but what you need to learn to do is to put on the magic glasses that have the lenses the light you see what was there all along, put in the magic hearing aids that allow you to hear the clues that have been right in front of you all along but you didn’t know, to listen for them, you didn’t know to look for them. Because you hadn’t been trained in understanding the elements of seller financing, and why it’s good for certain people, because once you start tuning into that you’ll hear sellers make mention of different things all the time that it may make your ears perk up and say, Hmm, that maybe there is an opportunity for seller financing
there. So you got to go and learn the seller relations skills that facilitate the conversation, and allow you guys to that conversation into an exploration of the topic of seller financing. So you have to learn the seller relations skills that allow you to be the tailor that you need to be as a Thoughtful Real Estate Entrepreneur. So thank you for listening to Sleaze-Free Real Estate Investing. On the next episode, I’m going to tell you a story about a building. It’s actually two different transactions, and a lot of moving parts, and it’s, it’s a great story, and what it really illustrates is that in so many ways, real estate entrepreneurship is like a chess match, and I’m going to walk you through the moves of this long and interesting chess match that I played that allowed me to buy an absolutely beautiful building. So again, please do yourself and do us a big favor by hitting that subscribe button in your podcast app. And then you’ll know exactly when the next episode is released a reminder, today’s show notes, including a transcript are at www.thoughtfulre.comE10. So until next time, this is Jeff from a Thoughtful Real Estate Entrepreneur, signing off.