When it comes to working directly with sellers—especially with seller financing or other creative financing—creating the right deal structures can admittedly seem a little complicated. But ultimately, every deal simply comes down to three simple things: 1) what are you giving me? 2) what am I giving you? 3) what form does the things we are giving each other take? In this episode, Jeff breaks down this simple framework in detail and provides examples of how to answer each of these three questions.
You know, it’s kind of funny about real estate. On one end of the spectrum, you have the world of realtors and listed properties in the multiple listing service and stuff like that. And that process of making offers there seems pretty straightforward. It’s like, here’s my offer, here’s what I’ll give you for your property. If you look at the other end of the spectrum, that people who are doing kind of like creative finance, maybe you call it more advanced deal structuring, that can seem exactly the opposite, it actually seems pretty complicated like a boy, there’s a lot going on here, that almost seems overwhelming. But in either case, whether you’re in the simple end of the pool, or the complex end of the pool, actually, every single deal just comes down to one thing, I’m gonna give you three bullets that make up that one thing in this episode, but it really just comes down to one thing and thinking about it in this simple manner, really helps make complex stuff feel a lot more doable and easy to understand. So Let’s cue up the theme song. We’re gonna jump right into this. Welcome to racking up rentals, a show about how regular people, those of us without huge war chests 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, we’re just looking for, quote, motivated sellers to make lowball offers to. You see, we are people oriented deal makers, 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. Hey, thank you for joining me for another episode of racking up rental. So this is Episode 157, which means that show notes can be found at thoughtful rt e.com/e 157. Please do us a big favor by hitting the subscribe button in that podcast app of yours. And rating and reviewing the show. All of those things are really helpful to us and make all our effort in the podcast here. So worthwhile. Thank you for doing that. Onward with today’s episode. So a couple days ago, I was creating a video for my coaching clients in the deals workshop called the fundamentals of seller financing. And it really just kind of got me thinking overall about this topic of like, boy, there’s a lot kind of going on with all the potential configurations of seller financing stuff. And for some reason, it made me think back to when I was a kid. So when I was a kid, like I think a lot of kids, I liked baseball cards for a while. It wasn’t my passion in life overall. But for good 234 years, I was pretty intuitive kind of knew what I was doing. And so I would sit down with friends. And of course, we would talk about baseball cards, look at them, trade baseball cards, etc. Now, when I traded a baseball card with somebody else, was it always just like here, I’m gonna give you this one. And you give me that one? Just a simple across the board, one for one swap? No, it wasn’t always like that. A lot of times it was like, well, I’ll give you this one. But this one is, this one’s pretty sweet. I mean, this one is like mint condition as they would say, and this one’s in plastic, and whatnot. So and this a great player. So rare cards, I’ll give you this one. But I’m gonna need three cards back from you, or you know what you give me, I’ll give you this one, you give me one card and five bucks, or something like that. So we would trade and I would give them something and they would give me something back. And it wasn’t always just a simple one. For one type of thing. There was some complexity, a little nuance there because we had to somehow kind of, you know, right size, the difference in the value between the two things that we were exchanging, so they might give me more than I gave them. But that’s what actually felt fair. And this brought me back to thinking about the fundamentals of seller financing, because crafting a tailored deal. Especially one with, quote, creative financing can seem complex, but at its essence, it’s actually really quite simple. And I realized it’s really just three things. Everything comes down to every deal just comes down to this. A, what are you giving me? B? What am I giving you and see what form do each of those things that we’re giving each other take? Okay, so I’m going to mostly think about this and explain this from a context of like we’re being the buyer, because that’s kind of what we do mostly in the show. We’re buying a property. So a, what are you giving me? Seller? B, what am I giving you seller and see? What form does all this stuff? Take? So let’s just break it down, like one at a time. What are you giving me? I’m the buyer, you’re the seller? What are you giving me? Well, it’s easy just to look at that and go, Well, duh, you’re giving me the property? And of course, that is true to some degree, because that’s the context of what we’re doing here. But it’s not just as simple as you are giving me the property. What rights? Are you actually giving me? Are you giving me the right of ownership? Are you giving me an option to buy this property? Are you giving me the right to lease this property and have an option to buy this property? Are you giving me just the right to use this property in the form of a lease? So there’s, it’s not just that you’re giving me the property, you’re giving me certain rights as it relates to that property? What problems are you giving me? Right? What problems? Do you have a roof that needs to be replaced? Soon, you have a tenant who’s being kind of a pain, what problems are you handing me? In this exchange? Right? Because we’re gonna, that’s what this is, we’re gonna exchange, I’m gonna give you something, you’re gonna give me something. So let’s get into detail as to what it actually is that we’re giving the other person. So what problems are you giving me? What situation? Are you giving me? Are you giving me a situation where there’s no rental income for the first couple months? Because the property is vacant? Are you giving me a situation where there is an upcoming repair that needs to be made? What opportunity? Are you giving me? Have you said, Well, you know, all these units are at $1,000, they could all be at $1,300. That represents an opportunity that you are giving me, maybe you have a lot that is twice as big as it needs to be and has the ability to be divided. That’s opportunity that you are giving me? Are you giving me the ability to pay you overtime? Are you giving me use of the underlying debt somehow? Right? Are you Are we going to craft a deal structure here that allows us to not have to pay off your underlying mortgage at this point? So what are you giving me? In other words, what am I getting? Right? What are you, the seller giving me the buyer in as much detail and nuance as we can we can get to? Secondly, the next question is then what am I giving you? And again, there’s kind of an overly simplistic and obvious answer, answer, which is I’m giving you money. But it’s not just money, there’s a lot more detail to it. Am I giving you some amount of money now? Am I giving you some amount of money later? What is the schedule of the money that I will be giving you later? Am I giving you interest? On the money that I’m going to be paying you in the future? Am I giving you the ability to use the property after I’ve actually bought it from you? Am I giving you the ability to walk away easily and quickly from a situation that perhaps you just don’t want to have to deal with or may have a problem that you don’t want to have to solve? Am I giving you some kind of a promise or assurance about how the property is going to be used in the future. Like for instance, I have promised that these tenants get to stay here as long as they want without any rent increases, or I have promised that this house won’t be torn down for new construction. Sometimes that can be what I’m giving you the seller, am I giving you the seller a way to defer your capital gains tax? That’s what’s important to you, maybe that’s what I’m giving you, am I giving you a certain amount of certainty or speed, right, maybe by not having contingencies and having a close, quick closing date. So there’s a lot of nuance to what I am giving you just as there is a lot of nuance to what you are giving me and each of those things counts in the overall balance of the exchange that we are making. Ultimately, neither of us is going to move forward unless we are happy to exchange what we have for what the other person is giving us. So then the third question becomes, if we know now what you are giving me and if we know now what I am giving you what is the form that each of those things take? And I’ve given you a few clues on this already, as we talked about the first two questions what you’re giving me what I’m giving you, but let’s just walk through it. Of the thing means that you are giving me what form do those things take? Are you giving me title to the property at closing? Are you giving me a right to use the property maybe in the form of a lease? Are you giving me an option to buy the property? So now I have the right to buy the property under certain price and terms, but not the obligation? Maybe that’s what you’ve given me? Are you giving me a master lease where I get to lease the property so that I can lease it back out to the people who are maybe already living there or tenants I will bring in? Are you giving me a land sale contract, where I effectively become the owner, but title doesn’t transfer to me until I’ve completed paying the debt that I owe you? Are you giving me the ability to pay with a promissory note and provide a trustee? So there’s lots of different form factors that the stuff I’m that you’re giving me can take. So we just have to be as clear as possible about what are those things? What form might the stuff that I’m giving you take? Well, let’s just talk about the downpayment to start with. What form does a downpayment take? Is it cash? Well, that would be a lot of people’s default assumption. But does it have to be cash? No. Could I? Could I trade you something? As a downpayment? Sure, can I give you a tractor that you want and make that count as the down payment? Sure, absolutely. I what format does the downpayment take? What form does the interest that I pay you take? Does it take the form of a lump sum? At the end of the loan? All do it pay pay off? Is? Is it taking the form of monthly payments? Certainly, what is the amount of that interest? But even how is it scheduled? Those are form factor issues of what I’m giving you, am I giving you a specific closing date so that you have a certain amount of certainty about the closing of this word speed? Am I giving you my commitment to buy the properties without contingency so that you have a high degree of certainty there, and a sense of safety, and a sense that if I don’t perform, that you will be keeping the earnest money? So again, the questions become, what are you giving me? And let’s get as specific as possible. What am I giving you? And let’s get as specific as possible. And then of the stuff that you’re giving me? And I’m giving you what form does that take? I’m picturing really, almost like a scale. And on one side of the scale, is the stuff that you’re giving me and all the details of that. And on the other hand, on the other side, is all the stuff that I’m giving you in the form of the stuff that I’m giving you. And in order for us to have a deal, those two things have to pretty well balance, or close enough balance to the point where everybody feels like the exchange is fair. So as you are, this is the main idea I want you to leave with, as you’re thinking about structuring a deal, right, especially if you’re working directly with the seller, especially if there’s a bunch of unique variables, perhaps. I think in the coming years of our real estate market, there’s going to be much more of an opportunity for custom tailored deals to add a lot of value for everybody. And I believe that the skill set of being able to facilitate that conversation is going to be extraordinarily valuable for buyers. As you’re having that conversation. While the details and the technical things in the lingo starts to get sophisticated, and maybe seemingly complex. Remember that it all boils down to this simple idea. What specifically are you giving me what specifically am I giving you? And what is the form that each of those things we are giving each other taking. And that concludes another episode of racking up rentals. I appreciate you being here and listening along with me. shownotes again can be found at thoughtful rt e.com/e 157 Please do us a big favor by hitting the subscribe button in your podcast app and rating and reviewing the show. I hope we have earned a five star review from you. Did you know also we have a Facebook group for us trees as thoughtful real estate entrepreneurs. We do it’s called rental portfolio wealth builders and we would love to have you there so search rental portfolio wealth builders on Facebook or just go to group dot thoughtful rt e.com. If you liked this episode, I sure hope you did. Please take a screenshot of that on your phone. post that to Instagram and tag So we’re at thoughtful real estate on Instagram. All righty, I’ll 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 when when dealmakers remember solve the person to unlock the deal, and solve the financing to unlock the profits.