Real estate investing means structuring deals that these days especially are essential to your investment success. Gone are the days of easy financing. Many people with good credit even find it difficult to acquire a home for personal use, let alone get a loan for investment property.
This is truly a dilemma as we all know we are living in a time that may very possibly be the best time within our entire life to buy and invest in real estate. Finding viable financing or structuring deals are paramount to your success. One fact will still remain. You will be very hard pressed to find any investment where you will not have to have some money for a down payment.
We used to go straight to hard money lenders for this down payment dilemma. This can be done, however the hard money lenders have become almost as difficult as the banks themselves. Many now want bank statements, tax returns and I have even seen cases where the hard money lender wants to be on the title.
Structuring deals using seller financed properties are the seasoned investor’s deal of choice. Seller financing is a wonderful thing, but what exactly is seller financing. This is where a seller owns a property but does not have a loan on the property. The property is owned free and clear without a loan on it. This gives the flexibility for a seller to act as the bank and instead of paying the bank, the monthly payments are paid to the seller.
Where to find seller financing?
Simply stated you look for them and ASK. Most people do not openly offer or market seller financing. Most people prefer to cash out when they sell and others simply do not think of it. Truth is you never get seller financing if you do not ask. You have a 50/50 shot if you do ask. Let’s face it, if it were easy everyone would do it. It is not difficult, however it does require a bit of effort and diligence on your part. But this effort is rewarded big-time. To be a successful investor you have to be able to look for and offer up a win win for both parties.
To help you know about structuring deals, here is an example: a deal I structured with the purchase of a 4 unit building. I wanted to purchase a property which through researching tax records I could assume did not have a mortgage on it. I approached the seller and offered to purchase it from him with only a 5% down payment and asked him to carry the mortgage. Of course he was asking why he would want to do that so it was up to me to create the win win (in advance).
Win for seller:
- Get a monthly residual check in the mail
- By deferring the lump sum money he was not subject to large capital gains and he would realize a larger net proceed as he could keep more of his money. (this proved to be this seller’s hot button)
- He not only received the money from the sale of the property, he also received the interest on the loan he gave
Structuring the deal also to benefit the buyer (me in this case) is the following win for buyer:
- Save approximately 3% in cost of acquiring the loan from a bank by avoiding all the bank fees that you would pay if indeed you could get a loan
- You got a property that you can add to your asset sheet but that does not show up on your credit score which can hinder future loans
- In the case of buying income producing property you are now receiving positive cash flow
- You have tax deductions making you more money
- You have tenants paying down your mortgage for you
There are countless reasons why a seller would be interested in doing a seller financed deal, but you have to look for the win and most importantly you have to ask. Many investors who are reaching old age no longer want to deal with the headaches of property management or even managing the properties. They understand your motivations as an investor so they are open to creative deals.
Additionally, they are very motivated by maintaining monthly income while reducing their tax liability so by all means ASK for the deal. There are many people who inherit property from parents who live in another state and they simply do not want to deal with it. Make it easy for them to do financing for you.
Other homes may not be suited for a loan due to deferred maintenance and the house will not qualify for a loan. This is perfect for the person looking for a value play.
Look for the win and ask for the deal.
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