I can’t tell you how often I hear folks say, “I could never buy properties because I don’t have enough money.” It’s that kind of limited thinking that is the real issue. I spent months in 2017 studying seller financing techniques and training my brain to look for opportunities to create dialogues with sellers who could understand the benefits of seller financing.
Finding the Opportunity….
At the time, I was also looking for pre-foreclosure deals, so I would cold call sellers for 10 hours every week trying to set face to face appointments to try and solve their problems together. By chance, I accidentally called one of these seller’s former bankruptcy attorneys. We hit it off over the phone and decided to grab a drink. We stayed in contact and about 6 months later, I got a text from this attorney asking me if I would do a comparative market analysis on this triplex that he had owned for many years. With only $10,000 in my bank account, and a new mindset, I immediately saw the opportunity!
We met at the triplex and I began putting to use all my training on how to explore a win win deal for us both. He was tired of being a landlord and wanted to sell to move towards retirement. At the end of the tour, he told me he would most prefer to sell it using seller financings so I simply said “Why don’t you just sell it to me?” Unless you ask the question, the answer is always no. To my delight, over the next few hours, we put together a deal.
The Terms of the Agreement:
Tell me a bank that will give you those terms! It doesn’t exist. Since two of the three units were vacant, I negotiated a 45 day delay on the first payment and the ability to advertise the units for lease prior to closing. This allowed me to collect almost 2 full months of rent before my first payment was due. Also, I didn’t have much money in my bank account at the time, so I called a friend to loan me $10,000 for the down payment in exchange for a second position lien at 4.5%. I knew the property would cash flow and I could pay off the second in 12 months. This is how it all turned out.
Of my $7,300 out of pocket expense, I recouped $6,790 in monthly rent prior to my first mortgage payment. Not to mention the fact the property cash flowed $500 right off the bat. A great deal for me!
You may be asking, “Why would the seller ever do this kind of deal?”
For the seller, if he had sold it on market at the same price he would have net $585,000 after capital gains taxes. Because he chose to sell to me, he will make interest on the total balance for 6 years and net $809,000 (even after capital gains). In other words, the seller is making $224,000 more by selling it to me this way! Not a bad deal for him either. By cutting out the bank, the seller and I have created a mutually beneficial agreement and put more money in both of our pockets.
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Ten years ago, Melissa was living in a slum in Kolkata, India, helping over 200 women escape of sex-trafficking by providing alternative work at a social business. It was there she discovered her passion for financial education as a means of empowering people to move out of poverty. After graduating from UCLA with a Masters, Melissa spent 5 years working as a Social Worker; assisting clients facing homelessness, in jail, or at a psychiatric facility. As much as she loved the work, imagining saving for retirement on the meager salary of a social worker was becoming grim. That's when Melissa discovered "passive income." In no time, she fell in LOVE with real estate as a vehicle for wealth. Soon after, Melissa began locating off-market multi-family properties to purchase through creative financing strategies and win-win opportunities. Two years into investing, Melissa quit her day-job as a Social Worker to become a full time broker and investor. Initially she was drawn to people in difficult circumstances, so she developed extensive experience assisting families facing foreclosure, short sales, and probate. Melissa is well versed in helping her client's overcome complex real estate challenges. Currently Melissa is teamed up with Super Broker, Yascha Noonberg at Living Room Realty. Together they assist client's to achieve their real estate dreams, including how to strategically buy and sell a personal residence to maximize profits. Far from the slums of Kolkata, her greatest passion now is empowering other working professionals to develop passive forms of income through buying multi-family properties in Portland.