First of all, there are subliminal things you need to learn to do. When I say subliminal, there are basic sales tactics that work in any type of sales environment, especially in real estate.
One of them is association. You need to let your sales people know that people are doing this. It’s a regular thing. It’s not that unheard of for someone to sell with seller financing. If you’ve done this in the past, talk about it. Mention having done this in the past. People also want to do what other people are doing. If they know other people are doing it, they will feel good doing it. Let the salesperson know that people do it all the time, lots of people do it, then they’ll be more likely to do it. Unfortunately, we have a herd mentality. Often we first have to see that someone else has done something, and then we have permission to do it.
Additionally, you want to have some fear of loss, indirectly, in your tone of voice. You want to give the impression that this is the only way to close this deal. In many cases, it’s the truth, so you’re not lying to anyone. Let them know that. Be indifferent to it. You need to have an attitude about yourself that there are other homes you can buy, especially in this market. Make them feel like they’re going to lose something if they don’t make the sale with you.
Now let’s get into the subject itself. There are some things you can do to entice the seller to follow your lead. One of them is to offer them a good interest rate. In most of these cases we are buying these homes, not for a long term contract, maybe to have them for a few years with a tenant with a lease option to pay them off, or just looking to buy them for a little time to fix it and maybe sell it. Or maybe we’re just looking to contract it out to sell to someone else. So offer a good interest rate. Offer an interest rate that makes it attractive for the seller to grant you seller financing, to trust you. You’re not going to have it that long. That extra 2, 3 or 4% is nothing. I’ll pay 15 or 20% interest if I have to if the deal is good, just to get the deal under my belt and make some money on it. If you only make 3 or 4 payments on it, what’s the difference if you pay 20 or 25% on it? It will only cost a few hundred extra dollars. If the deal is good enough to be accepted, it is good enough to be accepted with a higher interest rate. Don’t make the mistake of financing at the same rates that the banks give.
Another tip for you if someone is uncomfortable is to offer them a ball. A balloon on a mortgage means that the mortgage is going to be paid in full within a certain amount of time. So a mortgage with a 3 year balloon guarantees the seller that in 3 years or sooner we will pay off that mortgage and he will have all his money. It also allows them to defer their taxes. If they sell their house today for cash, and they get their HUD, and they go to closing and they get that full amount, they’re liable to pay taxes on the amount total of their profits. (Make sure your accountant checks this for you on an individual basis). When they sell the house to you with owner financing, they don’t have to pay taxes on the full amount because they don’t receive the full amount. This allows them to defer their taxes for a year or two, or until you repay the loan in full.
Also, they act like a bank. I told sellers that the people who make money selling homes are usually the banks. I tell them that they will be in a position similar to that of a bank and that they will earn a lot of interest on their property. I add it up and tell them how much profit they’ll make on the deal. For example, it’s a $200,000 house and I’m giving them 8% interest. That’s a payment of $1,467 per month. Let’s say I make this payment for 2 years. After 2 years, on this $200,000 house, I’m going to owe about $197,000 or so. So, I’ll show him in a year, that’s the equivalent of $17,000 that I paid him. If it takes me 2 years to pay you back, I will have given you $35,000 on your house, and I will still owe you $197,000. Let him know that he will end up selling this house for $237,000 because of my monthly payments and the amount due at the time of payment. Not the original $200,000 on the contract. Explain that this is how banks make their money. Point out to him the actual dollars he will get over a period of time.
On an interest-only loan, you’ll pay them interest month after month. At the end of the loan, you will still owe them the full amount. If it’s a $250,000 house and they give me an interest-only loan on the house, I still owe them $250,000 every time I pay it off. So all I give them in advance is money in their pocket. Be sure to tell them that the entire payment each month goes straight into their pocket, no matter when I pay it back, I will ALWAYS owe you the full amount of the loan.
It’s a good deal for a seller. And it is the truth. This is how mortgage companies and banks make BIG MONEY! This is why some investors stopped investing after a period of time when they put a million dollars in their accounts and became hard money lenders. They become private lenders and make a lot of money for NOTHING!
In many cases, you will have a seller who will accept financing from the owner, but needs the money NOW. Point out to them that if you give them $20,000 now and pay back the difference, they will have to pay taxes on that $20,000 (again, check with your accountant about this). Suggest this to them if the house is fully paid off: so they can save some money, they can instead go and get a loan/mortgage on the house for $20,000. You can put that $20,000 in your pocket right now. I will then make the payments on this loan until we sell the house and I pay you back in full. And right now, you don’t have to pay any taxes on that $20,000. It’s a great way if they want money now.
Here’s a tactic that works and will continue to work. Once you get a deal on seller financing for a house that sells for $300,000 and it has a 5 year balloon, tell the seller that in 5 years or sooner I will pay you back. If in the near future I have someone willing to buy this house, I will call the seller and tell them you have extra money, offer to pay around $250,000 for this house NOW. Guess what. That $250,000 today is worth more than $300,000 in 4 or 5 years, and you just made $50,000! If they make a counter-offer for a little more, tell them you’ll think about it, wait a day or two, call back, and accept their offer. There are many ways to make money in this business.
The bottom line is: MAKE AN OFFER. You have to believe that people will accept your offers. Don’t think for a minute that just because you don’t own your home doesn’t mean a lot of other people don’t. I own a house. I can borrow money against it, I can rent it. Either way, make an offer. There’s a lot of people owning houses that’s paid for, and they’re just sitting there. Make the offer, look them in the eye, throw them high and watch them buy. Believe in yourself!