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Case Study Part 1: Buying Your Primary Residence Off-Market with Seller Financing

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Using the Thoughtful approach to buying properties off-market and negotiating seller financing isn’t just for rental properties—it can be applied to buying your own primary residence as well! In this episode, Jeff shares the first part of a two-part series outlining a case study on exactly how he and his wife used the Y.E.S.S.E.S. Framework to buy their own primary residence using a variety of creative deal structuring tools and seller financing.

Episode Transcript

Well, we know we love off-market marketing, relational negotiation, and seller financing. And we apply that towards our goal of building wealth through a rental portfolio right. But what if we also could apply those exact same skills the same approach the same mentality to buying our own primary residence? Well, in today’s episode, and in the next episode, I’m going to tell you a story. I’m going to give you a case study about the house I’m sitting in right now, the house that my wife and I live in, that we bought for ourselves using creative deal structure led by thoughtful marketing, and seller relations-oriented negotiation. I can’t wait to tell you the story. So let’s cue up the theme song and I’m going to jump right in to giving you the case study.

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 “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 a Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks are 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.

Thank you so much for joining me for another episode of Racking Up Rentals. Show Notes for today’s episode are going to beat thoughtfulre.com/e63. Please do us a big favor by hitting the subscribe button in your podcast app. I would appreciate that so much. It really helps other fellow thoughtful real estate entrepreneurs to find this show. All right onward with today’s episode.

So as I sit here today, it is the beginning of a new year. And at the beginning of a new year, oftentimes we are thinking in a pretty reflective kind of manner. And I was sitting there talking to my wife, Jessica the other day. And we’re just sitting in this house and we looked at each other. We’re like, you know what 2020 we manifested this house, we made this happen. And I wanted to tell you the story about how that happened. because it brings in all of the tools we talked about on a weekly basis on this show, just apply it in a slightly different context, which was buying a property for ourselves to live in. So my wife and I had considered moving for a long time. And this wasn’t a move within town. It was a move kind of across the state to a smaller town about three and a half hours away from where we currently live. So it’s, you know, a significant move, but not like across the country. But we wanted to move to this this other place, we’d been kicking the idea around for quite a while. And finally, after kind of dipping our toe in it for a couple years, we really decided that we wanted to do that. But the big question in our minds was, how was this going to work? Because there are a couple challenges.

The biggest challenge is that I’m a self-employed person. I am a real estate entrepreneur, my real estate portfolio, my tax returns are designed for taking advantage of the benefits that real estate can offer from a tax perspective. put all that together, I don’t have all of the attributes that give me the ability to just walk into a bank or a mortgage lender and say, Hey, I would like a residential mortgage for myself. So financing was a big, big question mark for us as we thought about trying to buy a new house for ourselves. The secondary challenge was that we weren’t 100% sure exactly what we wanted. We knew we wanted something that was sufficiently different from what we had been our living environment — the house, the neighborhood and things like that. But we hadn’t zeroed in on exactly what that meant.

But what we ended up doing although at this moment, I had not yet put the words to this. We were just simply applying the Y.E.S.S.E.S Framework. The Y.E.S.S.E.S Framework for getting off market sellers to accept your offer — that exact process that we have discussed in detail on this podcast is precisely what we did to manifest this house. And this house, this case study, got an opportunity for us to put some creative thinking and some creative deal structuring into play. And that’s the story that I really want to tell you because this is exactly what I and we do for our investments in our real estate portfolio all the time. But it’s also very possible to apply this to yourself. And I’m hoping that some of you listening right now are thinking to yourself, I have been having the same problem. I’ve been wanting to make a change, but I don’t think I can just waltz into the bank, get the next perfect loan, but I don’t want to be stuck. If that’s your thought, now, or maybe in the future, listen on, let me tell you this story.

So I’m going to share this case study with you in two parts: break this into the two different natural phases of this situation and the way this negotiation played out. So we’re going to follow the Y.E.S.S.E.S Framework and in part one, this episode, we’re going to talk about Y, E and S. And then in part two, we’re going to talk about S-E-S, the back half of the Y.E.S.S.E.S Framework. If you need a quick refresher on the Y.E.S.S.E.S Framework, it’s a six step, process and framework for connecting with sellers and making proposals that are likely to get accepted.

And so the first letter Y is YOU, you have to know what you are wanting what your goals are, what you’re looking for. The second letter is E that stands for ENGAGE THOUGHTFULLY, which means how we’re going to reach out to these sellers that have the potential to be the people we can buy properties from S stands for SOLVE THE PERSON; the second S stands for SOLVE THE DEAL. So that means we can’t really solve the deal and try to craft a transaction until we really, really, really understand the players and the people and who they are and what their thoughts are and their perspectives and viewpoints and everything. Then there’s an E for EMPATHIC PROPOSAL. This is when we put our quote offer in front of people, but it’s framed as a proposal. And then the last S is called SHARPEN AND AGREE. And when we sharpen and agree, we take our proposal, we get feedback, and then we refine it to the point where both parties can say yes and accepted. So here’s how this case study played out for us Using the Y.E.S.S.E.S Framework.

The first letter is why stands for YOU, or in this case, it’s us because this is my wife, Jessica and I. And as I mentioned before, one of our challenges is that we weren’t 100% clear on what we wanted. So that was really the first step is we couldn’t go out into the world using this framework and be vague about what we wanted be too open ended about what we wanted. So here’s what we discussed, we decided that when we close our eyes, we picture the perfect lifestyle. One was that we had a big yard, we’ve got a great dog he’s about at this time, he was about two and a half named Fonzie. And Fonzie, at our old house, had a yard but a very small yard. And he couldn’t really get out and run, you know, really run, we couldn’t really play ball with him in the yard. And we wanted Fonzie to have a big yard. So that was one thing that was important to us.

The second thing is, we knew in the town that we were moving to that there’s a lot of new construction neighborhoods, kind of infill developments, or not so much infill developments, but just us like subdivision developments. And we didn’t want to live in that type of environment, we wanted to live in more of a mature, established type of neighborhood, we wanted very specifically to have big trees in our neighborhood. And so we knew that was part of it as well. We also knew there were certain parts of town that really resonated more with us. And as we identified it, it was about four different kind of pockets within town that we could pretty clearly define and say we want to live in these particular areas. And so those were kind of our main thoughts. The other main thought, of course, was that we had to find a seller, who would be our bank as well as our seller. So that was really our primary criteria. So we needed to find a seller candidate, who would be a great fit for being involved in seller financing with us. But otherwise, we wanted a big lot in a mature neighborhood in a few certain parts of town. So the next thing we did is we translated those elements of our vision into something that could be queried in a database, because I knew we were going to go to our title company in this town, which we already had an established relationship with, and we’re going to ask them for a list. But how were we going to get this list? Well, we could define the list in terms of a few criteria.

One is we could tell them exactly what neighborhoods we wanted. We could say we can either name the neighborhood or we could say okay, this pocket number one of three or four is the North border is this road, the South borders that road, the east and west borders are this road so we give them very specific areas. That’s what we wanted. We said within those areas, we want an owner who has owned this property for several years, and is an absentee owner, meaning they don’t live there, the tax records are being set somewhere else, because we knew that would be the crux of our ability to potentially negotiate seller financing. We wanted them to have owned the property for several years, let’s say 10 years, because we knew that in that case, they’d have a lot of equity, maybe even have this property paid off. And that too, would really match up well with our seller financing goals. We told them that we wanted the house to be no newer. In other words, the construction date of the house needed to be before 1990. So why was that? Was it that we were really looking for an old house? No, not really. But we knew we wanted to be in an established neighborhood with mature trees. And so that meant that the homes here wouldn’t have been built in the last 20 years, they needed to be older so that the neighborhood would have a more established feel. And those trees would have had lots of time to have grown. And then of course, we said, we want the minimum lot size to be whatever we said, I think we probably said 9000 feet, for instance, was a minimum lot size that we wanted.

Now, one other thing that Jessica and I wanted, but we didn’t really know how to translate into a iqueryable. List criteria that we could ask for was, we really had this vision of living in a home that had views of the mountains, because this is sort of a mountain town. And we wanted to be able to see mountains, that was a big kind of lifestyle quality of life upgrade we wanted to make. But we didn’t know how to convert that into something we could ask for an A-list. So we just had to trust that maybe some of these neighborhoods that we were wanting to target with our list, we’re going to have those types of views. But we really didn’t know. So I asked for the list and I got a list back. And the first thing we did now this list was of a manageable size; it was probably about 300 names. And so Jessica being very meticulous, far more than I am. She went through property by property and looked up on Google Maps, Google street view each property and manually decided yes or no with those. And with that she tried probably trimmed out about a third of them, and said, Oh, you know what, this inadvertently is too close to a busy road. There’s commercial stuff here nearby, maybe we don’t want that. Looking at the curb appeal. I don’t see the curb appeal. So she actually screened out, probably about a third of them. And we were left with a list of approximately 200 sellers that we wanted to reach out to. That was all the you the why write the letter? Why in the Y.E.S.S.E.S Framework was the U step? Or in other words, us? What did we want? And how could we translate that into a list?

Now secondly, we moved on to E for ENGAGE THOUGHTFULLY. Here’s what we did: we wrote a personal letter; we simply told our story. And we made it about both of us. Now I had history growing up in this town. So I mentioned that we didn’t make it overly sappy or cheesy, but we just said that the honest truth is, we’re feeling a pull to come back to this town. And luckily, we’re in a position where our work is flexible. And this is what we want to do. This is why we are reaching out to you if you would ever, you know consider having a conversation with us about selling this particular property, we would love to have that chat with you. We both put our contact information and names at the bottom of the letter. And we both signed it in our own real handwriting. And this is an important point because the sellers now see, okay, there’s a man, there’s a woman, I see both their contact info, phone numbers, email addresses. And it makes it very comfortable for the person receiving the letter to decide who they want to respond to if they’re going to respond. And there were certainly people who chose to call only Jessica. And there were people who chose to call both of us but called Jessica first. And so that’s an important detail as well. We received a lot of phone calls, actually, a couple emails, quite a few phone calls. Some people even called to say I really appreciate your letter. I too have felt a pullback to the town. And our property is not for sale. So I can’t help you on that. But I do know so and so down the street. He’s got a sign out front, you should go check that out. So we got lots of nice feedback. And we got a few people who called and said yes, I would consider that conversation with you. And one of those people was a guy we’ll call Albert.

Albert was actually in the sequence of things one of the first people to call us and he left both of us a message and so this since this is what I do all the time, I called our back Jessica wasn’t quite as excited to do that. So I called him back. And I looked up his property and I saw, okay, this is kind of a neat looking house, it’s a really kind of a cool location. And, you know, as I’m, as I’m looking at the Google street view, I think this thing might actually have some views. Now, again, we didn’t know that we could achieve that through our list. But I have to think in hindsight, that there was some bit of the universe working in our favor, because we set our intention. And we said that we’d really like to have views. So I called Albert back. And I learned about him. And that’s, of course, the focus of the first S in the Y.E.S.S.E.S framework, which is SOLVE THE PERSON. So here’s what I learned about Albert.

Albert was extremely fed up with this one particular tenant he had, even though he had a person who was kind of acting as a property manager for him. Kind of a half duty property manager, you might say, Albert was really disappointed he, he really felt in his opinion, right. So his opinion on his own property is what matters doesn’t matter what I think it matters what he thinks. He felt his property was just a train wreck. It was just a dumpster fire because of this one tenant who had been there for several years, had not kept things up. And he, he was really feeling kind of fatalistic about this particular property, he knew that it was still a good property. And he actually lived there himself. So he had a bit of an emotional connection. And he knew kind of what it could be when it was properly cared for. But he knew that he couldn’t sell it right now for top dollar, because it just had been too much deferred maintenance too much bad, you know, daily living by the previous tenant. I learned very quickly that Albert is a sophisticated guy, he did have some experience in real estate, I quickly was able to determine, and he was confident he had a friend, his property manager who has a real estate license, and he would turn to that person for advice. But he clearly was not relying on that person to act on his behalf. But also, Albert was a confident person is an older guy about 70. And married to a woman who’s a little bit younger than him. I found out quickly just through chatting with Albert, that this, this property was indeed owned free and clear. So our list criteria had led us to high likelihoods of free and clear properties. And that turns out well, that that wasn’t the case here. And I also learned that he didn’t seem to be too concerned about his capital gains tax. Now he had lived in this house for quite a while. So he definitely was going to be subject to capital gains tax upon the sale of this property. But he didn’t seem to be too concerned about that, which I found a little bit interesting. And I think later, I would kind of figure out maybe, why. So I’ll tell you that when we get there, he and I had great rapport, he was trusting but verifying i think is the best way to put that he seemed to believe in me, but you know, he was he wasn’t going to blindly just oh, I’ll just do whatever this Jeff guy wants. But it was a good, comfortable rapport of two people, me and him talking to each other who are both trusting but confident and able to verify that our thoughts about the other person were indeed accurate. So it was a good kind of comfortable dynamic. At one point, not too far into the conversation. I said, Albert, I just want to brainstorm all the potential paths here. Are you open to the idea of me making payments to you over time? And he said, Yes, I’m, I’m open to that. And as we kind of just initially started to have this dialogue, he told me that he really wanted to get $625,000 for this house, he felt it was a $700,000 plus house if it had been repaired. And he certainly had the capabilities to do that he just really didn’t want to he was feeling fed up and was ready to be done with this particular thing. And so he felt from his perspective, like he was giving a buyer a good deal at 625. And I felt like that was a reasonable figure too. I hadn’t vetted it too deeply at that point, but I felt like that was reasonable.

Now, what he also told me is that if you were to be open to that idea of receiving payments over time, right, then that’s, by the way, just a very, very plain English way of broaching the subject of seller financing, without being too jargony or technical. He said he would want $150,000 down, right. And it was clear very quickly from his comments around this, that he wanted to make sure that a buyer had skin in the game. This is a very, very important thing to him. He said that he felt like four and a half percent interest would be fair, and he didn’t really want this to drag on forever. So he suggested a 15 year amortization. So our initial is not you can even call this a proposal because it was just verbal and it was actually coming from him. But our initial just jotting down in pencil of any numbers were $625,000 purchase price 150, down four and a half percent interest rate on a 15-year amortization. Now, my initial reaction to this was I don’t think that’s quite where I would want to be. But I, as I always do, just kept that to myself continued to gather information asked, clarifying questions to make sure I could understand Albert, and his perspective on this topic as well, as I possibly could, I knew I was gonna have to make some adjustments to this deal. And I wasn’t sure exactly what they were going to be just yet. But we were making progress. I had a fish on the line, so to speak, the hook was in his mouth, and he was interested. And the general vibe of what we were talking about was actually quite reasonable, overall, but it wasn’t quite right yet.

So in part two of this case study in the next episode, I’m going to tell you more about how the second part of the Y.E.S.S.E.S Framework played out and how we handled it, because we just went through Y for YOU, or in this case, US; ENGAGING THOUGHTFULLY; and S – SOLVING THE PERSON. And I was feeling pretty good, like I was getting a good sense for solving Albert. So in the next episode, we’re going to move on and talk about S – SOLVING THE DEAL; EMPATHETIC PROPOSAL; and SHARPENING AND AGREEING. And as you’re going to find in the next episode, we broke some unique tools out of the toolbox to do some creative deal structuring that really led to a great outcome for both of us, and I’m sitting in that house right now recording this message for you.

By the way, if you are thinking to yourself that you would like to do this, we have got some education and training on our approach to direct mail marketing, at seller.directmail.com. If you go there, you can take a look at what that involves. It’s extremely affordable. And it shows you how you can get your list, what you would say in your letter how you should physically package that letter up, and even gives you some tips on how to efficiently go about the work of printing letters and mail, merging and folding and stamping and sealing envelopes and all that good stuff so that you don’t just have to sit there yourself for days on end doing that.

So that is it for today’s episode of Racking Up Rentals. Again, show notes for today’s episode are going to be at thoughtfulre.com/e63. Please do us a big favor by hitting that subscribe button in your podcast app. And if you would do us an even bigger favor that is so easy takes just a second would be to rate and review the show on Apple podcasts or on Spotify or wherever you listen. Did you know that we have a Facebook group for thoughtful real estate entrepreneurs too? Well, it’s true. It’s called Rental Portfolio Wealth Builders. And I would love to have you join us over there. Just type group.thoughtfulre.com into your browser and the magic of the internet will take you right to that page. And you can join the group. If you liked this episode, and you’re listening on your phone, please take a screenshot of that post that screenshot to Instagram just go ahead and tag us, we are @thoughtfulrealestate. I will see you in the next episode where we will continue the second part of this case study.

Until then, this is Jeff from a 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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