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3 Keys to Establishing Enough Credibility to Get Seller Financing

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How do you establish enough credibility with the Seller, to get them comfortable with the idea of doing Seller Financing with you; to being your lender? It’s an important question, with an important answer. In this episode, Jeff provides the top three keys to establishing that credibility with the Seller, so that you can get all the Seller Financing loans you need!

Episode Transcript

So there you are, you have got a seller sitting right in front of you. And you’re pretty sure that seller financing is going to work here. It’s a good fit and makes sense for them and what they’ve shared with you they want to accomplish. It makes sense in the context of the plan you have the vision you have for this property, and you want to make your proposal and then this thought pops into your head. And you ask yourself, why? Why would these people trust me to be a good borrower, and then all of a sudden, you’re feeling less confident, and you’re not sure how to make the proposal in a way that will give them the confidence that you think that they need to have. In this episode, we’re going to talk about the three keys to establishing enough credibility with the seller to get them comfortable saying yes to your seller financing proposal. Let’s cue the theme song we’ll jump right in.

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 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.

Thanks for joining me for another episode of Racking up Rentals. Show Notes for this episode can be found at www.thoughtfulre.com/e133. Please do us a big favor by hitting the subscribe button on your podcast app, it really helps you make sure you don’t miss any shows and it helps other fellow Thoughtful Real Estate Entrepreneurs to find us onward with today’s episode.

So a few years ago, I remember this time when I was sitting at a seller’s dining room table. We had been talking about my purchase of their single-family home for a little while. We were really kind of getting down to brass tacks and we were ready to kind of make things happen. And so I showed up at their house at their dining room table with a nice binder. In this binder, I had information about myself and my wife. And some financial information about us; copies of tax returns a copy of a cover page from a credit report, and all sorts of stuff like that. And it was in a nice binder. And I placed the binder on the table. And I looked at the woman and I said, Linda, I have put together some information for you so that you have the chance to make sure that you feel really good about me and my wife as borrowers before you decide to say yes, I’ve got tax returns, credit report, blah, blah, blah, in this binder and I slid it across the table to her. And she touched the cover, opened it about an inch, closed it again. And she said well, you know, if you are the kind of person who would give me this binder, before I even ask for it, obviously you have nothing to hide. So there’s nothing that I need to look at. And in that moment, it was a huge, huge lesson for me. And I want to break down for you today, the three main lessons that I’ve learned from having lots of those moments at seller’s kitchen tables or dining room tables talking about seller financing.

When you back up just a little bit, you think to yourself, Okay, I’ve got this seller, I think it’s gonna be a good fit, you might start to have a doubt that they will feel comfortable effectively loaning you money, right? seller financing is alone, right? They’re not writing a check out to you out of their checkbook from cash. In that sense. It’s not the same type of loan that you would get from somebody else. But it is a loan that you have to pay back. And that means that you want to make sure that they feel comfortable with you and you’re wondering what’s it going to take for them to feel comfortable? But why are we going to talk about this? I mean, for two reasons. One is, you know, you need the sellers to be comfortable enough to say yes, and I want to see you do a lot of seller financing deals. But secondly, it’s because it’s a mental issue. And if you start to get this idea in your mind, that you aren’t credible, and then you have to work really hard to establish your credibility to them. It could become a real mental block for you, even if it’s not an actual issue in reality, real life Even if the seller is not thinking about this at all, you might be thinking about it. And now all of a sudden, you have actually placed an obstacle in your own way, you’ve taken a problem you think is going to come up, and you’ve manifested it into being an actual problem, even though maybe it wasn’t going to be. So it’s very important that you feel super comfortable about this topic, in general, so that you can handle it definitely when you’re working with the seller, and it won’t be an issue at all.

I want to give you my top three keys, to establishing enough credibility to get those seller financing proposals accepted, and then at the end I’ll give you the one big real takeaway from this whole thing. Now, before I even jump into the three specific keys, the intro, the preface to this has to be that we are of course, making a seller financing proposal to a seller whose situation is actually well suited for seller financing. That’s rule number one of seller financing, it’s not really about you, it’s about them and what they need. So if you show up and you say, Well, I want to do seller financing, I want to give you a down payment, I want to make payments to you, you’re already setting yourself up for a big problem, because it’s not about you, it’s about them. But if you show up on the other hand, and you say I’ve been listening to you, and you told me X, Y, and Z and when I really put my thinking cap on and came up with a proposal for you, I think that the best thing to meet your goals and your objectives would be for me to make a down payment to you and make payments to you over time. And here’s why that is the best way to address what you told me you want to accomplish. That’s really the key to seller financing. So you have to make a proposal to somebody that’s actually appropriate for them, and indeed fits what they have told you they’re trying to accomplish. Now, if you’ve done that, then you can move on to focusing on these three key things, to establish enough credibility to get the seller to feel comfortable being your lender.

So here is key number one, key number one is to actually not assume that they need more than they really do. Don’t assume that they need more information, credibility from you, then they really do nuts really easy for you to just assume like, well, gosh, I’ve gotten a few bank loans. And those people wanted to know, XY and Z about me, which was, by the way, everything. And so that means this person sitting across the table, this Linda sitting across the table from me, she wants to know everything that the banquet, and thus I need to get her as comfortable with me as the mortgage loan officer down at the community banquet. And that might not be a safe assumption. In fact, I will go so far as to say, probably 98 times out of 100, that’s really not a safe assumption. Don’t assume that they’re going to need more than they really do here. Let me give you two points on this. The first one is this, they are focused on what matters to them primarily, if their main objective is, let’s say capital gains tax deferral, and getting a price that they feel good about when they sell their property to you. That’s like this item sitting on the table. And they’re just sitting there staring at that item on the table. They’re staring at that thing that they want. They’re not looking at everything else on the table, they’re super focused on what matters to them, and all the other stuff they might be somewhat focused on, they might be completely oblivious to it. And my point to you is that it might have barely even crossed their minds that they should be underwriting you and your assumption that they should be quote unquote, should be underwriting you. That’s what you’re bringing to the, to this conversation and what you’re bringing to the, to the table in your own mind, not what necessarily matters to them. So they’re super focused on what matters to them. And they’re probably less focused and only somewhat even aware of the other things besides those things, right. So if they’re focused on I need $2,200 A month to live off of and that’s their number one thing that they’re focused on the rest of the stuff as long as you’re delivering that is usually not quite as important as you might think it is, or you might think it should be. So don’t assume that they need more than they really do because they might be so focused on what matters most to them and so happy with the fact that they’re getting that in your proposal, that they’re not really worried about all the other stuff like checking your credit or whatever else you might think. Secondly, under this category, don’t assume that they actually need more than they really do. Remember, that besides your smile and a handshake as you do seller financing with a you will also be providing them other Are protections and other things that are easy to explain and are super valuable, for instance, you are going to you’re going to sign a promissory note, there is going to be a deed of trust document that is recorded with the county where the property exists that says that you have pledged this property as collateral to satisfy the promise that you have made to this seller, Linda, let’s call her. And so there’s a recorded document that the whole world can see that says, you have made this promise and it’s more than just a smile and a handshake, you’re gonna make some kind of a down payment, it might be small, it might be tiny, it might be larger. Either way, you’re going to have some skin in the game that you wouldn’t want to walk away from, you are going to have insurance on this property, just like you would naturally with any other property, and you are going to name them on your insurance as being an additional insured or a loss payee. So that just like any bank, would want to be named on your insurance, homeowners insurance policy, you’re going to do the same for them. And so there’s all these things you’re going to do anyway, that provide them with safety and protection. And so anyway, don’t assume that they need more information, or time or, or credibility or anything, then they really do. Let them sort of take the lead and read from them how much you think that they need from you, based on what they actually tell you, not what you assume, to be the case. So don’t assume that they need more than they really do. That’s the first key.

Here’s the second key. And the second key is to preempt anything that they might want to ask you. So what is preempt mean? Preempt means to give it to them before they can even ask? And the first story here, I told you at the beginning of this episode is exactly you doing that, right. So when I showed up in that moment, and I preemptively put the binder on the table and said, Here’s what’s inside the binder, I want to make sure that you have the ability to understand who we are as borrowers and feel good about us. Before you say yes, I provided that information before she could even think to ask for it. And that in and of itself carried a tremendous amount of weight and credibility, right. So think about it that way. The credibility came from the fact that I gave her the information before she could ask for it. The credibility didn’t come from what was in the binder, the credibility came from the fact that I was willing to share the binder before she even knew what to ask me. So what was in that binder? And why did I choose the things that were in that binder? Well, I put a few things in there that I thought would be helpful, right. And, you know, let’s just step back for a second and compare and contrast, when you are talking to a bank about getting a loan, they’re going to ask you for information about yourself right in the form of an application. That means that when you provide information to them, you are providing the information they’ve asked for. Or in other words, they have defined the list of information that they need to feel good about you. Because they have initiated the process of saying, here’s an application, fill it out. Now, when the roles are reversed, though, and you’re talking to a seller, and you are the one to preemptively bring up this topic, then you are the one who gets to define what information is shared, right, because you’re not responding to their requests for information, you’re preempt preemptively proactively giving them the information before they could even think to ask for and when you do that, you’re not filling out somebody else’s checklist of stuff that they want, you are deciding what yourself what should be on the checklist, and you’re just giving it to them. And so let’s say that you didn’t feel really great about the way your tax returns looked. But you did feel really good about your credit report that I would say print your credit report, put it in this binder and don’t put the tax returns in until you are asked for them. Or on the other hand, you say I feel really good about showing them the list of properties that I own. And that’s the main thing that I want to push forward with as a sign of my credibility. So you put a detailed description of all the properties you own and a photo so that they can see that you are a great real estate investor or perhaps you are most excited and proud of and feel like your tax returns represent you in the best way and so that’s the foot you put forward. But the point is this, that when you are the one to preemptively and proactively put information in front of them. While you don’t want to overdo it, you also get to decide what’s in that binder and you can decide that strategically yourself. But some of those things that you might consider putting in their credit report or just the front page of a credit report, perhaps it’s tax returns, the thing about tax returns is that most people don’t know how to read them, but it just looks very substantive. When there’s, you know, 50 pages of documents in there. Maybe you do that, put that list of properties that you own, and in a description of each, maybe you put a simplified financial statement for yourself in there, and maybe doesn’t have to be extremely detailed, but a simple, you know, 10 or 15 point balance sheet for you, or some things along those lines. And then you might choose to put references in there.

That brings us to point number three, the three keys to establishing enough credibility to get the seller to say yes, and feel good about making the loan to you. And that is that references are the most valuable resource that you have when establishing your credibility. Now, what do we mean by references? Well, the top tier of references would be references from other sellers, who you are doing seller financing with and making payments to each month. Now, you might say, Well, Jeff, that’s great. But I don’t have those yet. So we’ll talk about what some of those secondary level references could be. But let me just tell you a quick story on this. This happened within the last year, probably the last six months of my own real life real estate investing journey. So I was talking to a husband and wife about buying their four Plex, and we’ve been talking for a long time, I mean, like four or five years, it’s very slowly and I was starting to sort of pick up the turn up the heat a little bit and turn up the intensity and really try to be a little bit more assertive, because I really wanted to buy this property. And we had established quite a while before that seller financing would be a good fit for them. As long as they felt good about some of the other terms. They definitely wanted a larger down payment and a few different things like that. And so we were getting closer and closer, and I could feel it. And I actually felt like we were just within like strike striking distance of putting this deal in contract. And the seller, the husband actually turns to me and says, you know, I feel like we know you because we’ve been talking for so long, but it occurs to us that we don’t really know much about you financially. Would you mind putting some information together. So first of all, this was actually kind of rare for this conversation to come up. After so long, I was just like, oh my gosh, well, we were about knocking on the door of buying this property. And so here they are asking, which felt a little bit to me like backpedaling, because I felt like we had been gotten so close and had known each other quite a long time and gotten to be very friendly and stuff. It’s felt like a little bit of a step back. And I said, Of course, I’d be happy to. And in that moment, I didn’t really want to show things like bank statements, or other things along those lines, I just want to keep it very simple. But he left it up to me to define what it was, I would get back to him. And so I came back to him and his wife. And I said, here I’ve put together some information like you requested. So here’s a, you know, quick front page of my credit report is a simple financial statement. Here’s a list of the other properties we own, which are actually all very close to the property that I’m going to be buying from you. And I said, and that’s all well and good. But here’s where I think you should really spend your time, I have put together a list of several other people who I pay every month on seller financing purchases, just like this. And the date back several years, here’s their name, their phone number, and their email address. And while you can take a look at my credit report and all that to your heart’s desire, I would recommend you spend more time just get on the phone and ask these people and find out what their experience has been like. So I handed that to them. And they said, okay, and I left their house. And about two days later, I got a call from the wife and she said, Jeff, I’ve been calling these references you gave us. And I can’t even believe the things these people have to say about you. She’s like, they’ll just have the greatest things to say that their experience with you has been so easy that they just get their money every month, no questions asked. And that they never worry about anything. She said then, do you mind I’d like to I’d like to scan my notes that I just took. I just took all these notes talking to people. I want to scan them and email them to you. Is that okay? I said Wow. Sure. Yeah, that’d be great. And so a couple minutes later in my email shows up this this scan and she had just simply taken the reference sheet I gave her. And she had just taken notes right on that sheet of all the people that she talked to. And I gave her maybe seven or eight references. And I’d look like she was able to reach all but maybe two or three of them. And next to each one was just these amazingly kind remarks that said, like, this is the easiest transaction I’ve ever had, you know, such a nice play person always does what he says he will do never missed a payment ever. And she said, This is amazing. That’s all we needed to know.

So now, why am I telling you that story? I’m not telling you that story, to pat myself on the back about how you know how great I followed through with everything. But I, there’s a couple things I want you to take away from this. Number one: As you do more and more and more business, your track record will snowball into what can become just a beautiful thing where that’s in many ways, I would say that list of references right there, that list of phone numbers and names and email addresses is maybe the greatest asset I have in my business because it has a track record of performance. And so even though at the beginning, you might feel like well, I don’t have that yet. Just know that every time you do a deal, you’re adding another person to that list. And since I know that you’re going to follow through and do exactly what you say you’re going to do. And you know that just know that every time you add someone to that list, your greatest asset, which is your track record is getting stronger, and stronger and stronger. But the other point is that those references those, those comments and bits of evidence on my character in my ability, my track record of following through, carried more weight by themselves than any document containing a bunch of numbers that I could have possibly put in front of them, I could have put a balance sheet in front of them that had 10 extra million dollars of net worth. And I don’t think it would have mattered, I could have put a credit report with 100 more points on it in front of them. And I don’t think that would have mattered, I could have put a different set of tax returns in front of them. I don’t think that would have mattered as much as the list of references of real people that they could call. And they could see that the person that they thought it was indeed, that person based on all the evidence from these outside people. So now if you don’t have those references just yet, you do have other references in your life. And that’s the second-best thing that you can do. So I would encourage you to look at your personal and professional life and figure out who’s somebody who might be able to write a paragraph or a simple letter or something like that, that you could put in your own little, quote, credibility kit, who speaks to how you conduct yourself in the world, right? Maybe you have a contractor who you’ve worked with, who you have paid consistently every time he or she has billed you. Maybe you have a title company escrow officer person that you’ve worked with and closed other deals with who can write a quick paragraph that says, ‘Yeah, this person does exactly what they say they’re going to do have close several transactions with them.’ Maybe you have a tax preparer or a CPA who could write something that says, you know, this person conducts themselves with great professionalism, I’m proud to do their taxes, they’re in a strong financial position, whoever it might be, maybe it’s just a previous employer. Maybe it is anybody that you have done something remotely professional with that you can put into that into that list and just have a little blurb about a real estate agent that you’ve worked with perhaps and just know that as you do more and more and more business, you can continually upgrade that list of those references, and even sort of subcategorized that list of references into professional references and private lender references and seller financing references, etc.

So, to recap our three key takeaways here for how you establish enough credibility to get that seller to say yes to seller financing and to be your lender is number one, don’t assume that they actually need more than they really do. Don’t give them more information and whatnot until you know what they are and until you know what they need. Secondly, is to preemptively give them what you want to show them and the power of preemptively proactively giving them something carries a ton of weight in itself. And then number three references are your most valuable resources in establishing that credibility. But here is the real, big overarching takeaway I want you to walk away from this with. This is like the bow we put on all of these things. When we when we look at all three of those keys I just explained to you, they have one thing in common. And this harkens back to the last couple episodes of this show and we talked about the other four currencies and the currency of relationship. The power of relationship is insanely, insanely strong. When you have developed a relationship with people and they feel good About You. And they’ve already decided that they mostly trust you. They’ve already decided that you’re a good person that you have character, that you are their kind of person. That makes everything so much easier. Right? When you’re not assuming, to go back to key number one, don’t assume that they need more than they really do. Don’t assume that they need lots of data, when they’ve already decided in their heart that they think you’re a good trustworthy person, you know, number to preemptively give them the information that you want them to have. You when You preemptively give it to them, it only strengthens their sense of relationship because they just look at that and go Holy smokes, who preemptively gives us information about themselves, except for people that we greatly can trust. So that enhances the sense of relationship. It was the sense of relationship that made Linda only open the front cover that binder and shut it immediately without literally looking at anything in there. Because she already decided that relationally She trusted me and that currency carried so much weight. And our last one, our last key the references being your most valuable resource that is all relationship all day. It’s all the existing relationship you have created with people. It’s all the new relationship you’ve created with this seller. And you’re just merging those two things together. And it’s creating one giant relationship snowball. So I hope that that’s what you take away from this as if you want to do seller financing deals, and you want to be out there investing and helping people along the way. Relationship is what it’s all about. And we’ll help you get the seller financing loans that you want and need.

That’s it for today’s episode of Racking up Rentals. Again, show notes for today’s episode our thoughtfulre.com/e133. Please do us a big favor by hitting the subscribe button in the podcast app and rate and review the show. Did you know we have a Facebook group for thoughtful real estate entrepreneurs too? It’s called Rental Portfolio Wealth Builders. We’d love to have you join us over there. Just go to group.thoughtfulre.com and the magic of the internet will take you right to that page and you can hit the Join button. If you liked this episode, please take a screenshot and post that to Instagram and tag us we are @thoughtfulrealestate.

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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