Series Overview: Previous videos covered an overview and important terminologies of creative financing such as lien positions, notes, mortgages, and deeds of trust.
Focus of Video: Deep dive into seller financing, also known as owner financing, owner carry, carry back, or installment sale.
Key Topics
Seller Financing Basics
Definition: A method where the seller finances the buyer's purchase, acting as the bank.
Common Terms: Seller financing, owner financing, owner carry, carry back, installment sale.
Finding Seller Financing Deals
Sources: Zillow, real estate agents, wholesalers.
Approach: Analyze deals to determine good offers, negotiation strategies, and exit strategies.
Story Illustration
F-150 Story: Demonstrates the concept of seller financing through a relatable vehicle sale scenario.
Original cash offer for a property of $110,000.
Negotiation Tactic: Offer terms instead of cash to meet seller's price.
F-150 (worth $5,000) sold for $12,500 on terms; made $15,000 over four years.
Structuring Seller Financing Deals
Promissory Note: A legal agreement to pay the seller over time.
Key Elements:
Purchase price
Down payment
Interest rate
Term length
Negotiation Tactics
Terms Over Price: Willingness to offer the seller the desired price if terms can be negotiated favorably.
Positioning Lines: "I'm probably not your buyer," uses to gauge seller's flexibility.
Financial Considerations
Cash Flow and Returns:
Cash on Cash Return: Ratio of annual cash flow to the total cash invested.
Typical target is a minimum of 12% cash-on-cash return.
Seller financed deals enhance returns through lower down payments and structured terms.
Exit Strategies
Assignment Fees: Based on cash flow potential.
$2,000 fee for every $100 of cash flow.
Interest-free deals may command higher fees.
Practical Advice
First Steps: Wholesale initial deals to understand process and generate cash; start acquiring properties gradually.
Leverage Financing: Finance your financing by over-borrowing to cover initial investments or pay yourself.
Market and Strategy Insights
Current Market: High interest rates make creative financing appealing.
Seller Financing in Real Estate:
Widely accepted in residential, multifamily, and commercial real estate.
Can be used to acquire or dispose of properties.
Finding Opportunities
High Equity Properties: Target properties with significant equity.
Free-and-Clear Properties: Ideal for seller financing due to lack of existing debt.
Conclusion
Creative Financing as a Tool: Essential for maximizing real estate investment potential.
Learning Resources: Further information and guidance available from Pace Morby's resources and platforms.