Seller Financing and You!

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You may have heard the terms “Seller Financing” or “Vendor Take-Back” (VTB) used when discussing investing strategies, but what does it mean?


Put simply, it’s when the person selling the property assists with some or all of the mortgage, so the seller essentially becomes your bank.


Yes, you read that correctly…the seller can become your bank!


In the learning below, I sat down with a long-time Keyspire member to discuss the benefits of VTBs for both the buyer AND the seller.

Check out the Transcript of the video below:

Susan asks, is there any advantage to the buyer as the interest rate is always high? So we did cover this, but I want to make sure that we cover this again because you guys have to make sure that if you’re doing this, it’s all about providing advantage to the buyer. That’s how you’re going to get this deal done.

So what’s the advantage to the buyer, Mandy?

I’m the buyer. Okay? So what’s the advantage to me, as the buyer? Less capital down. If I’ve got financing restrictions due to self-employment, due to maxing out on mortgages, due to debt servicing because of some stuff in my past, then I don’t have to go to the bank.

I don’t have to ask the bank for that. So it’s a way to be able to get through financing loops. Benefit to me, honestly, it positions me into a “wow, like I’m a strategic investor. I know how to offer that deal. I’m talking my agent through to the other agent.” Super, super funny story….

Start off, a mentor of mine was like, “you’ve got to ask for seller financing. You always have to ask.” So there was this listing and it said, seller is interested in vendor financing, something like that. So I pick up the phone and I called the agent. I was like, “Hi, yeah, your thing says that the seller’s interested in a VTB? And he said, Yeah, what kind terms would you like? And I was like, Ah, I’ll get back to you.” And I hung up because I was like, I didn’t even know they said yes. But I didn’t know what terms were gonna be beneficial to me. So there was still some learning in all of this. So when I was able to negotiate my first one, I realized that a benefit to me as the buyer was that I just went up a level on my ability to be able to negotiate and make sure that a deal is gonna be beneficial for me.

So those are the benefits to me as the buyer.

Excellent. Yeah, and I’ll just really briefly piggyback on that. I don’t mind, as a buyer, I don’t mind paying 10% interest if I’m going to make money in that deal. I don’t mind paying 15% interest if I’m going make money in that deal. That’s what anyone who’s new here, you have to condition yourself to think like an investor, not like a consumer.

Don’t look at 10% interest rate and say, holy shit, I’m gonna go bankrupt. 10% Interest rate is, you can’t run a business like that. You can. Businesses pay 10% interest rate every single day. They use that capital to make more than 10%, so pay 10% all day long if your deals are producing 30, 40, 50%, even if they’re producing 25%. The benefit to the buyer is, they make the 15% off of somebody else’s money, right?

Mandy’s paying 10%. She’s making 25% total. That means she takes home 15% without having to put her money up. That’s the benefit to the buyer. Okay, Mandy? We talked about the benefits to us, we’ll call it “us the buyer.” We’re buying a property and we want somebody else to put up the capital. But let’s say I’m the seller. You’re the buyer, and I’m the seller.

Michael’s looking to sell a property… Why? Why would I give you seller financing versus saying, No, Mandy, go to the bank, get the money. Give me the chunk of money. That’s what I want. Why would there ever be a benefit to me as a seller to have you do seller financing? Let’s go there. Because you flag that as important, it’s so important.

It’s really important. And I know we’ve touched on a few little spots. A lot of times the sellers have owned these assets for a long time it’s been a major part of their life. It’s been a major part of their retirement fund, their finances, and they really don’t have anything that they’re set to do with their money. So, if you offer them a VTB they only pay tax on the amount that they cash in that year. I think they’ve got five years to be able to defer capital gain payments to you as the new buyer. So it actually puts them in a very, if they’re selling their portfolio, it’s one way for them to defer tax and not be hit with it in the year that they’re selling their asset on a major spot.

The second reason is that it’s giving them another form of passive income. So they were used to the cash flow from this property like we’ve discussed, and now they’re going to be able to have passive income from you, the buyer, paying them as a private money lender. Another huge benefit in that exact scenario is that they are secured on an asset that they have been familiar with for 20 years.

So if you as a buyer are like some young punk, and unable to be able to do what you said you were going to do, or life happens and the seller happens to take over possession of the asset again, they’re like I already know the thing inside now, so it’s actually an easier property than for me to secure some asset down the road that I don’t know anything about. .

There’s some major benefits to the seller, and again, it’s just another way for them to be like, they were a strategic investor and they’re still an investor. There’s still… there’s still that stigma of being able to say, when I’m able to hold financing for a seller, for a buyer, I’ll know that it’s like the end, like the continuation of a real estate cycle.

There’s a lot of benefits to a seller to be able to hold that financing for a buyer.

Yeah, I agree. And so I’m gonna talk to my sellers. For a second here. Let’s build on what Mandy just said. Picture this. You’re selling your property. You’ve had it for 10 years, You’re happy with it, but you just you just want a little less management.

You wanna spend a little more time with your family. You wanna be a little more passive, so you’re selling the property. And maybe you might be moving it into private lending or private equity, which is, if you guys have heard my story, it’s what I’ve done over eight years to 10 years is and certainly the last five years when my first son was born.

I’ve shifted my income property equity, I’ve shifted all that capital into the more passive stuff. So you’re selling a property, you wanna shift to passive. And so imagine you sold the property and you said seller financing available because you’re okay with just getting paid every month. That’s what you want.

You don’t need a big check for 400 grand. You’re just going to find somewhere to put it in private lending anyway. Now you got to find a deal, qualify a buyer, qualify a property. So Mandy just said something brilliant. It’s okay, the property’s qualified, you’ve owned it for five or 10 or 20 years. You have to qualify the buyer, but I’m less concerned with the buyer because I know I can get the property back with the power of sale if somebody doesn’t pay me. So I have the property, it’s qualified. I don’t wanna do any of the work. I put in my ad “seller financing available” now instead of selling it for 500,000, I sell it for 520,000. I get 20,000. I make $20,000 with this one tip I’m giving you guys at least.

I get 520,000 for it because now my pool of buyers opens up. It’s not just the regular pool that has to get bank financing. Now all these new people can buy this property and if, supply and demand, the very simple the very simple macroeconomic. If more people can buy it, demand goes up and then price goes up. So talking to my sellers, if you offer seller financing, if you just need that monthly interest payment, you will almost always get more money for the property than if you sold it regular way, because more people can buy it and then you’re gonna get that money anyway.

They’re gonna give it to you in three years or two years, or five years.

Amazing strategy. If you were selling five properties at 500,000 and you got 20,000 more… You just made a hundred thousand dollars extra by just putting there “will offer seller financing.” So powerful for a seller.

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Michael Sarracini

Michael Sarracini is an expert on creating lifestyle freedom through entrepreneurship and real estate investing. He’s an award-winning entrepreneur, speaker, author and TV celebrity. Michael is the co-founder and CEO of Keyspire

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