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The #1 Mistake Investors Make When Trying to Get Seller Financing

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When real estate entrepreneurs learn about Seller Financing, they tend to get really excited—for good reason! But this enthusiasm can lead to one big mistake, that actually decreases their success. In this episode, Jeff discusses the #1 mistake that real estate investors make when pursuing Seller Financing deals, and explains how to correct that mistake and get much better results!

Episode Transcript

When people learn about seller financing, they tend to get really excited and can’t blame them. I felt absolutely the same way. But that excitement and that enthusiasm, while being a good thing, can actually lead to one particular mistake. I see people making that mistake which then leads to getting fewer Yesses and more NOs. In this episode, I want to talk to you about that number one mistake and how you can avoid it. So let’s cue that theme and jump right into it.

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/e136. 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.

In today’s episode, I want to talk with you about the number one mistake that I see people making; Real Estate Investors making, when they’re trying to get seller financing. It’s important to note you know that this mistake is made from a good place. It’s made out of a sense of enthusiasm and it’s made out of a desire to be successful. But it definitely causes problems when it is made. So I want to chat with you about that today. And let me give you sort of the headline or the punchline first: the mistake is prematurely offering seller financing.

So there’s a couple of words in here premature and offering, we’re going to dive into those words here just a little bit as we dissect what this problem really is. What does it mean to prematurely offer seller financing? When I say that, what I mean is that I see many investors bring up the topic of seller financing, just way too early in the conversation. Either they broach the subject of seller financing kind of generally, or they even go so far as to specifically bring it up as an option or an offer to the seller. So this of course then begs the question, well, what is too early? You know, when is the right time? And it’s not really that it’s a matter of accumulating time, right? It’s not that you should think of it as, hey, I need to make sure I’ve talked to the seller for an hour and a half cumulatively before I bring up seller financing or it’s got to be a week after we first meet or anything along those lines. Instead of waiting until the topic of seller financing has been indirectly, actually brought up by the seller themselves.

What do I mean by indirectly? Well, what the seller will often do, I mean, almost always is they will provide clues in their comments. That seller financing might indeed be a relevant solution or tool for them. So they will provide us clues without necessarily even knowing that they’re providing those clues. Certainly, without doing that on purpose, providing clues on purpose. They might not even know that seller financing is the right tool. But in other words, what they do is they start to say a few specific things that make us listen in, lean in, our ears pick up a little bit and say oh, what you just said there is a clue that I can bring back into the conversation later. That will totally make my seller financing proposal. make sense. So we hear those little clues. And we sort of record them in our mind. We keep our mouths closed and then we continue with the conversation.

So let’s just talk about why is it so important for the seller to provide clues and I feel like this is where we really start to get to the heart of this topic and I would say it’s not just an important thing to wait to the seller gives us clues. But it’s actually a critical thing. Because if we bring up seller financing too early, it becomes clear that that’s what we want. If we start bringing it up really early in the conversation, it’s really obvious that this is from the get go, what we wanted to accomplish. And when we make it clear that this is what we want to accomplish, then our overall actual leverage in a conversation or negotiation goes down. Because now the seller sees like, Oh, I see, they really want this seller financing structure in this deal. Or they might start to think they really need this seller financing structure in this particular deal. And when they start thinking that you need it, or you really, really, really want it, that raises other questions as well like, is this buyer not able to qualify for a mortgage in any other way, and it starts to potentially raise red flags or concerns in their mind. But more than anything, you have just shown them all your cards, which gives them more power. So the way way, way better situation is one in which we gather the information needed to present seller financing to them in a way that helps them get more of what they want. So quietly, it is more of what we want, right you and I that is what we are hoping to accomplish. But we don’t want to be clear about that part, we want to be able to present a seller financing proposal to them, ultimately, in response to what they have told us.

That brings us to kind of the key distinction on this topic. The unintentional mistake is bringing up seller financing, proactively. The more pro move the more experienced thoughtful approach is to bring up seller financing reactively to what the seller tells you. I was having a conversation was with some coaching clients the other day about this topic. And I was saying that it’s kind of like a doctor making a prescription. Now if you just walked into the doctor’s office, and before you could even say anything. The doctor said, Hey, let me prescribe you with some Xanax. You might think to yourself, Wow, that’s kind of weird. He doesn’t even know you’re making a prescription here. And you don’t even know, like what symptoms I’m experiencing? Or, you know, wow, it looks like you have an agenda here doctor to prescribe that particular pill. I wonder why are you getting kickbacks on that? There’s some incentives. However, on the other hand, even if that doctor did want to ultimately prescribe that medication, the doctor might ask you questions that allow you to talk about the symptoms you are experiencing, so that ultimately she or he could then say, you know, after listening to your symptoms, here’s what I think would be best. Let me prescribe you with some Xanax. And that is, I think, a really actually good- and not to pat myself on the back – but it’s a very apt analogy for what we are doing here now that the seller doesn’t think of us as a doctor. But we are thinking of ourselves in this way too. And if we could wait long enough and gather enough of the clues, when we bring seller financing backup, it will seem like we’re doing it as a very thoughtful prescription based on the diagnosis that we kind of came to from talking to the seller.

So what are the clues that we are waiting for the seller to provide? Well, a couple times in my real estate investing career, a seller will literally say early in the conversation, hey, I want to do seller financing. But most of the time, that’s not what happens. Instead, most of the time, we’re just having a conversation with the seller. And we need to have the skill to know what to listen for. And next level skill is to have the skill to know what questions to ask that might even prompt them to mention some of the things that we are looking for them to mention. But let me just give you a few comments that might be pretty common to hear actually from a seller. If you heard these, you might have your ears perk up and say, Ooh, that’s a clue. Right there. I’ll give you four examples: One might be someone saying, “I want to sell my rental property, but I need the income to live off.” Right? So they’re saying I want to sell it but if I sell it, there goes the income I need income. That is one of the great things that seller financing can do is it can continue to give them an income. So you hear that and you go, ooh, that’s cool. And you put that in your back pocket. You don’t respond right away. But you put that in your back pocket and you gather your little database of clues.

A second thing they might say they might say “I want to sell my property, but I really don’t want to pay the capital gains tax right now.” That’s a super, super common one. So again, what they’re saying is I wish that I could sell without this tax problem. And you know that a well structured seller financing deal could help alleviate some of that capital gains tax bill pain as well.

The third thing, they might say something like, you know, “I could sell my property, but I just don’t know what I do with the money.” That too, is actually somewhat common. Or someone says, “I don’t really need this cash.” Now, selling the property turns into like a problem for me, because now I have this big responsibility. What am I going to do with these $300,000. And I have to go find something to do with them. And boy, that sounds like a lot of work, or I just don’t want to have to do that. So that’s another thing.

And then the fourth one might be, they might say something like, “If I sell my property, I don’t want to pay the taxes, so I’ll have to go buy another one. And while it’s a good time to sell right now, it might not be a good time to buy sure seems like everything is so expensive these days.” And that is yet another clue that says ooh, perfect. You could do seller financing proposal, ultimately, although you’re not going to deliver it in this exact second is one that might allow them to sell that property without needing to buy another one, while continuing to have that income stream and the capital gains deferral benefits that that structure brings.

So here is kind of the simple summary. I want all of you listening to go and do more seller financing deals. And as we know, and as we’ve discussed, seller financing deals are infinitely better, more likeable, and more practical to accomplish in an off market environment where you get to talk to the seller directly. But in order to do this, you have to learn this simple skill: bite your tongue and open your ears, we have to be listening for those clues, and resisting the temptation to just be like, Oh, I heard one clue. Great. Now I can jump in. Or let me just jump in immediately before I’ve heard any clues. Because I’m so excited about this, we have to just wait for it, wait for it, wait for it with open ears, and closed mouths, until we’ve gathered all the clues we can to make a responsive prescription based on a diagnosis that comes out of that conversation. So do your best to resist the excited temptation to bring it up too early. And wait till that seller gives you those clues and then say, you know, “after listening to what you’ve been saying, I’ve been pondering this, have you considered having me make payments to overtime? I think that might make sense based on what you were just saying because Blank, blank blank.” Then you can explain and justify why your proposal meets all the things they just told you. So my friends go out and get those seller financing deals but don’t rush the process.

That’s it for today’s episode of Racking up Rentals. Again, show notes for today’s episode our thoughtfulre.com/e136. 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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