June 4, 2025 • 26 mins
Forget everything you thought you knew about selling real estate – this game-changing episode reveals how savvy property owners are earning 30-45% more by becoming the bank.
Drawing from 17 years of experience and over 700 seller-financed deals, Stephan breaks down the extraordinary financial advantages that most sellers completely miss. Through a compelling real-world example, he demonstrates how a $460,000 property can generate $600,000+ through seller financing with minimal risk and maximum flexibility.
The numbers don't lie: with a standard 20% down payment and 5% interest rate over a five-year term, sellers can pocket an additional $140,000 compared to traditional sales methods. Better still, the monthly interest payments create immediate cash flow while the tax benefits allow you to defer and potentially minimize capital gains liability.
Perhaps most surprising is how buyer default scenarios actually benefit the seller. Far from a risk, defaults can be highly profitable – you keep the substantial down payment, collect interest for the time they owned it, then regain the property to sell again or keep for yourself.
In today's challenging interest rate environment, seller financing creates the perfect win-win. Buyers get more affordable financing than banks offer, while sellers command premium prices and create passive income streams from assets they already understand intimately.
Ready to transform your property sale into a wealth-building opportunity? Whether you're selling a primary residence, investment property, or commercial real estate, this episode provides the blueprint to maximize your returns while helping buyers achieve their real estate goals.
Subscribe now and leave a comment about what seller financing topics you'd like Stephan to cover in future episodes – your question might inspire the next podcast!
www.stephanpiscanopodcast.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
All right, guys.
Thank you so much and welcome.
This is Stephan Piscano withthe Stephan Piscano Podcast in
the Real Estate Networking Group.
Thank you, guys.
As always, so much for joiningus Today.
We've got a special episodethat's probably one of the most
requested episodes that I'veever been asked to do.
It's one we've been thinkingabout doing for years and that
(00:22):
is why should sellers use sellerfinancing to sell their
properties?
I know there's a lot of peoplein the network that have seen my
stuff and they've seen us do alot on the buying side, because
that's what we do.
We are the largest buyer ofseller-financed income producing
properties in the United Statesand, gosh, going back to 2008,
(00:43):
17 years as we speak, we'vebought more than 700 units with
seller financing.
It has been tried and true, thestrategy that I love the most.
I think it gives the bestbenefits.
But interesting thing hashappened since I started putting
some of these training contentsout on YouTube and on the
podcast here, that we actuallylost at least two, maybe three,
(01:05):
deals in the last two yearsbecause we get a property under
contract and then they wouldtake a look at our YouTube
channel and they'd see ourvideos talking about the great
benefits of buying with sellerfinancing and they go oh gosh,
these guys, this is too good ofa deal.
So I don't know the truth is.
And then I guess they thinkthat we're trying to get one
(01:26):
over on them or something.
I don't know, but that couldn'tbe further from the truth.
The reality of it is if theyactually did listen to those,
even on the buying videos, wealways talk about one of the
things I love the most aboutseller financing and about real
estate in general as aninvestment strategy and asset
class is.
It is one of the few thingswhere you can have a buyer and a
seller walk away from thetransaction table and both sides
(01:50):
can win.
Honestly, I don't think there'sany structure that's more true
than seller financing.
When you really look at it, youknow the banks and the big
hedge funds coming in that arelooking to buy up distressed
properties at pennies on thedollar.
Those are the guys trying torip you off If you're using
seller financing.
If there is a strategy thatexists that benefits both
(02:12):
parties, both sides, more, Idon't know what it is.
So today we're going to talk alittle bit about something I've
never done before.
We're going to show what Ibelieve the top eight benefits
to sellers are.
Anybody out there who's lookingto sell a home or an investment
property for offering sellerfinancing as a strategy?
And before I get into that, asalways, guys, we'd really
(02:34):
appreciate it if you wouldsubscribe.
I'm grateful that we've gotsome good content coming for you
this month, and I love doingthis.
A lot of people ask me why areyou doing the podcast?
Because not only do we not makemoney from it, but actually
cost a fair amount of money andcertainly a lot of time to do.
But I just love doing it.
It's a lot of fun and I loveconnecting with new people that
(02:56):
are like-minded investors andentrepreneurs in my network and
just getting to showcase some ofthe things that I'm passionate
about with you guys.
So if you do enjoy it, if youdo benefit from it, it really
means a lot and it lets me showeverybody that's telling me stop
wasting time with the podcastthat it's worthwhile.
So please subscribe, either onApple Spotify or, of course,
(03:17):
here on YouTube.
And, as always, thank you too.
For whatever reason, everybodyseems to love this show on
Player FM.
You guys are now my favorite.
I had never heard of Player FMbefore we started this thing,
but we've got about 280 timesmore subscribers on Player FM
than anywhere else.
So, thank you guys, keep itcoming, hit that button wherever
you're at.
We really appreciate it.
(03:37):
So let me give you some visuals, guys, and we're going to try
to do this as quickly and aseffectively as possible, and I
could make it pretty for you,but if you're in my network, you
probably care less about thepretty and more about the
numbers, and so just reallygoing to focus on the numbers
here.
And if you're on YouTube andyou can see the video or Spotify
(03:58):
, you'll be able to see thevideo of this.
That'll probably be even morehelpful for you, because I'm
going to pull up just a simplelittle chart that I made here
and we're going to go throughthese one at a time and, as you
can see me scrolling, we've gotsome, got a lot of benefits here
.
So the top reasons that a sellershould consider using seller
financing to market and sellyour property number one that's
(04:21):
probably the most obvious toeverybody if you know even a
little bit about sellerfinancing, and this is probably
by far the biggest benefityou're going to get a premium on
the purchase price.
Okay, so that means and you see, I got a little example here
let's say you got a condo whichI just had, one that actually
gave me the idea to do thiswhere I just ran through it for
(04:42):
the seller off the top of myhead and showed them how much
more they would make over afive-year period if they sold it
to us with seller financing.
This was a condo in Las Vegas.
So these are the real numbersfrom that deal.
So market value let's say yourcondo is $460,000.
So that's what it's actuallygoing to probably sell for in
(05:03):
this scenario.
If you went and listed it for anormal traditional cash buyer or
somebody using bank finance andwe're just going to cash you
out, you probably listed at $500, you listed at $480, you end up
at $450, $460.
If you sell it the normal way,that's what you're going to get.
That's it.
You walk away with $460,000.
You pay your escrow costs, youpay your agent commission, so on
(05:25):
and so forth.
If that's the case, a prettystandard premium that you could
expect to get and this mighteven be low depending on what
markets you're in and what termsyou're offering with seller
financing you can easily get$500,000 for that same property.
That's worth $460,000 cash.
You can jack that price up upto 500,000, get that premium,
(05:46):
and it's a fair thing to dobecause you're offering to take
that money over time with terms.
So now.
So if you just look at it likethat, it's like, okay, you're
making an extra 40 grand, right,that's all fine and that's
great and honestly, that wouldbe worth it in a lot of
scenarios just by itself.
But let's really look at it howmuch extra cash you get, and I
(06:08):
think you're going to be shockeda lot of sellers out there when
you really look at these realsimple numbers here.
So for the sake of argument,we're just going to use these
hypothetical rates With a 5%interest rate and a lot of
people charge more than that.
A lot of them go for seven,eight, even double digits right
now, but let's just say with apretty low interest rate.
(06:28):
So you're making it fair to thebuyer too of 5% in a pretty
standard five-year term.
So that five-year term that'show many years the seller is
acting as the lender andcarrying the loan before the
balloon payment is due.
And then for the down payment,industry standard is 20% down,
which in this scenario of a$500,000 purchase price, 20%
(06:51):
down would be $100,000.
So with interest onlyamortization which very few
people do that, but everybodyshould if you're an investor and
that's what we always try to doyour annual debt service is
going to be $20,000.
And the way you calculate thatis $100,000 for your down
payment on your $500,000purchase price.
(07:11):
That leaves you with a balloonpayment, a note of $400,000, 5%
of that when using interest-onlyamortization.
So you're not paying down anyprincipal with your payments,
you're only paying interest, 5%of $400,000, simple math.
There is $20,000 a year.
So your annual payments to theseller, with seller financing,
(07:35):
are going to be $20,000.
And since none of that is beingapplied to principal, that's
all interest for the seller,that's all cash flow slash
profit, interest earned profitfor the seller.
Ok, so that means, since wegave him one hundred thousand
dollars up front and now theseller, you're getting twenty
(07:56):
thousand dollars a year.
And of course, in this scenarioand any properly done seller
finance scenario, the buyer ispaying all the HOA, all the
taxes, the insurance, all thecost of the property.
So this is a pure if you own it, free and clear, and you didn't
have any underlying note, whichthat's a whole other thing.
We could do another episode on.
You're getting a net $20,000 inpure profit interest earned
(08:18):
income to you every year, sinceit's done for a five-year term.
That's $100,000, five times$20,000, $100,000 in interest
paid to the seller during thefive-year term.
Okay, so we'll talk about thecash flow benefits of that in a
moment too, and some of the taxdeferment savings, but this is
(08:41):
the biggest thing.
So over the course of the fiveyears now let's do a
side-by-side comparison.
If I'm a seller and I sold myproperty for $460,000 cash, okay
, so then I'm walking away.
That's what I get.
I mean, there's no mysterythere I'm walking away with
$460,000, minus, of course, theescrow costs, any selling fees,
(09:04):
agent commissions.
So you're really I mean you'retalking about $420,000 or so,
whatever that would add up towhen you're all said and done.
But we're not going to evenfactor that in because you'd
still be paying agentcommissions and you'd still be
paying escrow fees on both ofthese.
So that doesn't really comeinto play.
So let's just assume for thishypothetical scenario, you're
walking away with $460,000 asyour gross and we're going to
(09:27):
call it our net because we'renot factoring in those extra
fees, like I said.
Okay, so that's $460,000.
That's it.
That's what you get when yousell at cash.
With selling with sellerfinancing.
You got $100,000 up front asyour down payment.
You got $100,000 up front asyour down payment you can take
and do whatever you like with.
Then you got $100,000 ininterest payments during the
(09:57):
five-year owner carry term.
So you've already got $200,000right there.
Then at the end of the fiveyears, because you did interest
only, which is smart for theinvestor to do, for us as
investors to do, because thatmakes your debt service lower,
which makes the cash flow better, which makes your cash on cash
return better.
So this is a win for everybody.
The reason it's good for theseller is now you haven't paid
down that principal at all.
So they're getting that full$400,000 balloon payment at the
(10:21):
end of five years payment at theend of five years.
So $100,000 down payment,$100,000 in interest only loan
payments paid to you as theseller over the five years,
another $400,000 in the balloonpayment paid after five years.
That's $600,000.
So compare the two side by side.
Again, you sold it cash, yougot $460,000 up front.
(10:47):
You walk away, do whateveryou're going to do with it.
Obviously, if you need to buyanother property immediately,
you need every penny you can getright here right now, then yeah
, selling it.
Cash obviously is going to makemore sense.
Cash obviously is going to makemore sense If you're in a
position where you don't have animmediate need for all of that
capital.
You already have your primaryresidence.
(11:07):
You're just going to maybe putit into another investment
property, you're going to put itin your bank account.
There's no doubt this makesmore sense because you're
comparing your $460,000 that youwould have got selling a cash
to $600,000 that you would getover the course of the seller
finance deal.
So that's an extra $140,000,which is around 30% more in this
(11:31):
scenario, and that's a prettygood.
The numbers will obviously goup and down depending on the
purchase price of the propertyand the terms, but that's a
pretty conservative, prettyaccurate percentage.
Over the course of a five yearyou're going to get 30% more.
Now, if you did it, I'll justdo this one off the top of my
head.
As I said, 5% that's a good,fair rate.
But hey, since this one'ssupposed to be for the sales,
(11:53):
what if you really went hardcorewith it and charged 8%?
Okay, so now you are getting$32,000 just doing this on the
fly.
So 8% of your $400,000 note$32,000 a year on your debt
service.
So now, over the five years,that is $160,000.
(12:17):
That's an extra $60,000.
This is why the interest rateis so important.
People rarely think as muchabout the rate and the
amortization.
That's far more important thanthe price.
The price is the leastimportant thing.
The rate and the down paymentare the most important things
(12:37):
for both sides.
That's why we argue about themost.
So now you're getting $160,000over the five years.
So now $660,000 versus $460,000, which, of course, is an extra
$200,000 more, which is about45%.
We'll call it 46%, I think,just real quick off the top of
(13:01):
my head.
Well, now I'm curious to seehow much that is, because that's
going to bug me.
So that's an extra 43.4% inthat scenario.
Now, if you start getting termslike that I mean I guess this is
supposed to be slanted towardsthe seller Then I don't think
it's really a fair deal for thebuyer anymore.
But those are very common,they're out there.
(13:23):
You can charge 8%.
I mean, I think 6% is probablythe most fair number.
We usually try to get three orfour, honestly, and then maybe
you settle it at four or fiveSix is probably the mid-range
you start charging seven, eightor more and then it starts to
become more advantageous just touse bank financing for the
buyer.
So that's just a shocking thing, guys.
(13:45):
So in this scenario you're goingto net over a five-year period
as the seller anywhere from theinitial scenario, the original
scenario we use, with a 5% rateof an extra $140,000 on your
property over the five-year term.
So if you divide that over thefive years, you're making an
extra twenty, eight thousanddollars a year in just pure
(14:06):
profit, pure interest on yourproperty.
Or if you want to charge kindof a mafia style, eight percent
or higher, you can get thatnumber up to as much as an extra
forty, fifty thousand dollars ayear and just pure profit.
It's all profit.
So that's the biggest reasonand that alone makes it worth
doing the other one that we'regoing to touch on briefly here,
(14:26):
these other six to eight reasonsI've got here that are benefits
for sellers.
You broaden your buyer pool.
There's only so many peoplethat are going to buy your
property, even if you have it atmarket value price or even
slightly below market value.
Even if you have it at marketvalue price or even slightly
below market value, bankfinancing right now is pretty
much garbage.
The rates are obnoxious.
The buyer pool is used to theselow interest rates that we've
(14:52):
all been so happy and gratefulfor the last couple of decades
here, or at least the majorityof the last decade and so paying
7%, 8%, when investors are usedto paying two and a half to
five is you know, it's just notgoing to work for you to get the
maximum buyer pool.
There also are some situationsthat, if you're dealing with
this right now, you probablyknow exactly what I'm talking
(15:13):
about and it's probably a bigthing for you A lot of HOAs.
If you're in a condo situationor even any property with an HOA
, it's very common to have HOAlitigation, and if your HOA is
in a litigation situation, or ifthey have any insurance
situations which is also commonit's nearly impossible to get
traditional bank financing, soyou might have to.
(15:35):
So then, if you want to marketyour property in a situation
like that, that means the onlypeople that can buy your condo
or your property are people thatare buying cash, or, if you
want to open it up to sellerfinancing and those people that
are buying cash, everybody who'sapparently so afraid of people
trying to buy seller financingand offer these great terms, you
should really be afraid of thepeople buying cash, because
(15:57):
they're going to beat you up onthe price and then you're just
going to get murdered on theterms, and that's the worst.
So you broaden your buyer pooland I didn't even put this as a
bullet point, but this is a keything for all of us that care
about just being kind andwanting to be a positive part of
somebody else's life in a goodway.
I'm looking at it as theinvestor standpoint, because
(16:18):
myself and my partners,obviously that's what we do as
investors.
But if you open it up withseller financing, you might sell
it to some beautiful youngfamily or old family, whoever it
may be that, for whateverreason, might have credit issues
, or maybe they have good creditbut they're self-employed and
they just can't get good termswith bank financing, and you can
help those people achieve thedream of home ownership, and
(16:38):
that's a blessing too.
It really is.
So if you care about that whichI do and hopefully other people
do too then that's anotherthing too.
So broadening the buyer pooland it obviously by broadening
the number of people that canbuy your property increases
competition, increases the terms, increases the price and
hopefully it speeds up your saleprocess as well.
Next one is another huge one too, which is you can defer the
(17:02):
taxable liabilities, and I'mgoing to combine this with this
one here of possibly minimizingor even eliminating tax
liabilities.
There's a little bit of debateon this.
Having bought and sold againhundreds of these, I've had this
conversation a lot with a lotof really smart people and some
not so smart people, but I'veheard a lot of opinions on it.
Some people think no, no, no,you have to pay all the.
(17:25):
I can assure you you don't haveto pay the full tax on the
purchase price, because if thatwas the case, all these
properties that we bought for10% down, 20% down or less, none
of those deals would havehappened because the sellers
would have been coming out ofpocket.
So you can, at the very minimum, defer the taxable liability.
So instead of in that scenarioabove, instead of paying your
(17:47):
cap gains on a $500,000 salesprice, you could pay your cap
gains on that $100,000 downpayment and then defer the rest
until the balloon payment fiveyears later.
Defer the rest until theballoon payment five years later
.
And there are some people thathave told me some strategies to
where you can actually reducethat taxable liability over that
five-year period with differentstrategies.
(18:09):
I'm not a CPA so I recommendyou talk to your tax
professional about that, butthere are strategies that exist
that are effective, in somecases even eliminating that
liability and converting thenote into other structures to
where you can, at a minimum youdefer your taxable liability and
it is possible to minimize itor eliminate some of it
(18:30):
altogether.
The other one, so the big risk Ihear with sellers is oh gosh,
well, what if they default?
Oh man, I got to foreclose andall that.
And that's the absolute dumbestthing that anybody could ever
say to me, because that would bethe best thing that could ever
happen to you.
So we scroll back up here.
Hopefully this is obvious, butapparently it's not.
(18:53):
Scroll back up here.
So you're selling your propertythat's worth $460,000.
You got $100,000 up front.
In this scenario, with yourdown payment, a lot of people
can get more.
You can ask for $30,000 andyou're getting $150,000.
So you're getting around 23%,24% of your or as much as 30%,
(19:15):
depending on what down paymentyou're getting of your
property's actual value up frontand you're getting the interest
payments for however long youget them.
Let's say you sell it and yourbuyer defaulted after a year.
In that scenario, well, nowI've got all the rates all over
the place, but at 5% you justgot $120,000.
(19:39):
So you got more than a quarterof your property's value in less
than a year.
And now, guess what?
You can foreclose in aboutthree, four months, and now you
can sell that property again.
And then you got your property.
Or you can just keep it, andmaybe all you needed to want to
keep it was that extra 120 grand.
And now you've got it.
And now you just keep it, oryou can just keep it, and maybe
all you needed to want to keepit was that extra 120 grand.
(20:00):
And now you've got it.
And now you just keep it or yousell it again.
We used to do that in the landbusiness 20 years or so ago and
I was selling lots in uh deming,new mexico, in the middle of
nowhere, nevada.
I mean, that was part of thebusiness model is that a huge
percentage of people would buythese lots with seller financing
and then they would default andthen we would sell the same
(20:21):
property you know, half a dozentimes and you don't want that to
happen, but that's the realityof it.
So obviously you do your workon the front end to make sure
you know, because nobody wantsto have to foreclose on somebody
you know acting in best faithand good faith with both parties
.
You don't want that to happen.
So you try to make the termsreasonable, upfront, so that you
(20:42):
don't have to deal with that.
But if you do, even though it'sa sad and stressful thing,
maybe from an investmentstandpoint, it's by far the most
profitable thing that couldever happen to you and you sell
the same home twice and thenyou're really making incredible
returns.
So again we kind of touched onthis monthly cash flow which,
(21:02):
again, if you're doing it withinterest only, amortization,
that's all pure profit.
Okay, unless you have anunderlying note and you're doing
some type of a wrap.
But either way, still it's netprofit to you, whatever your net
proceeds are.
So that's money that you canput into your pocket every month
.
And again, depending on whatyour situation is, if you're
just gonna put this into a CD orthe stock market, you're gonna
(21:24):
earn a similar or lower returnand you're not gonna be able to
really spend that.
You're not gonna get a monthlydividend from your CD.
You're not gonna be able totouch it at all.
It just sits there and grows by2.5% or whatever it is.
With this, you're earning 6% to8% a year in net interest-only
(21:45):
payments to you.
That are pure profit.
That goes right into yourpocket, right into your bank
account, tax-deferred, thatyou're able to utilize for
whatever you need right there.
There's not a lot ofinvestments that you could take
that lump sum and put it into,unless you bought another rental
property, but even then you'regoing to have all the stress and
(22:05):
liability and expense thatcomes with managing a rental
property.
With this, you're just gettingstraight monthly cash flow on a
property.
It's secured by an asset thatyou're intimately familiar with.
That you know better than eventhe person you sold it to,
because it's been your propertyfor however long you've owned it
and you're getting thatconsistent cash flow in your
pocket every month.
I think that's a massive,massive benefit for the right
(22:26):
kind of seller More certaintythat the transaction actually
gets closed.
Okay, what I mean by that iswhen you're using bank financing
and I've had it you know thebigger and the more expensive
the property, the more commonthis is right.
I mean we've sold some prettyexpensive properties and there's
a lot of legwork.
(22:47):
First you got your inspectioncontingency right.
Then you got your buyer'sfinancing contingency, which a
lot of time that runs right upto the close lot of time that
runs right up to the close.
And so even the buyer, largepercentage of the time even the
buyer doesn't really know,because it's not up to them, if
they're going to actually beable to close and because of
that financing contingency theirearnest money is protected
(23:08):
pretty much the entire durationof the close.
And I've had buyers string mealong for months on this bank
financing contingency nonsense.
So when you are the bank, whenyou're doing seller financing,
you're the lender.
You don't have any of that risk.
All of that nonsense goes rightoff the table and you're the
one who has all the control.
(23:29):
You get to decide when theloan's approved.
You get to decide it's approvedfor closing.
All you have to do is collectthe down payment from the buyer
and you're ready to close.
So it dramatically increases.
It puts all the control and thepower for you honestly, as the
seller, to where you're the onewho's going to decide if this
transaction happens.
You're not reliant on so manythird parties with the banks and
(23:51):
appraisals and all thisnonsense.
You are the bank, you are theappraiser, and if you want it to
close and the buyer providesthe down payment, hopefully,
then it's going to close.
So that's a great blessing aswell, and, I already mentioned,
you're earning interest on anasset that we're intimately
familiar with, which is great aswell.
So these are just some of thebenefits, guys.
(24:12):
I hope that helps a little bit.
On the seller side, I hope thatwe talked about enough here to
give you an idea of why youshould at least consider using
seller financing, especiallyright now too, guys.
I mean, again, with the ratesbeing as high as they are, this
is one of the best times in mylifetime to use seller financing
(24:32):
, both as a buyer and as aseller.
So I'm shocked that it's notbecoming more common.
As a buyer and as a seller, soI'm shocked that it's not
becoming more common.
I hope that it.
Well, I mean I'm fine actuallyeither way, because it's such a
blessing to me and my partnersand the people I come in contact
with.
If we're the only ones doing it, then less competition and we
get better terms.
But I really genuinely mean it.
I really hope that this videoproperly illustrates that it
(24:54):
really is a win-win for bothsides.
Obviously, again, there's goingto be some sellers.
If you just need that 400 grandright here right now, you're
going to go buy another houseand you need it, that's fine.
I mean then, yeah, take thecash, you should do that.
But if you're somebody that hasa little more flexibility, got
some options.
There's no question that sellerfinancing at the terms and
(25:15):
again, this is another beauty ofit You're working with a human
being on both sides instead ofworking with a bank, and it's
all flexible.
Every one of these numbers uphere, every single one of them,
from the price to the interestrate, to the amortization, to
the down payment, to the lengthof carry term all of it is
negotiable.
And there's even more levels Icould go deep with it of how you
(25:35):
can tailor it for what you wantand then try to fit that with
what the buyer wants and bothparties can win and it can be a
real home run.
So grateful that you guys tookthe time to watch this or listen
to it.
I hope that it's beneficial foryou in some way, grateful to
have you, as always, in mynetwork and again, if you would
(25:56):
like to make me happy, hit thelike button or the subscribe
button or, better yet, leave mea comment somewhere on what
you'd like to see for some ofour more seller financed and
real estate investing strategiescontent.
That we do because we'd like toproduce more, but we want to
give you what you want to see.
So have a blessed Memorial Dayweekend and we will talk to you
(26:17):
soon.
Thanks so much.
All right, guys.
Thank you so much and welcome.
This is Stephan Piscano withthe Stephan Piscano Podcast in
the Real Estate Networking Group.
Thank you, guys.
As always, so much for joiningus Today.
We've got a special episodethat's probably one of the most
requested episodes that I'veever been asked to do.
It's one we've been thinkingabout doing for years and that
(00:22):
is why should sellers use sellerfinancing to sell their
properties?
I know there's a lot of peoplein the network that have seen my
stuff and they've seen us do alot on the buying side, because
that's what we do.
We are the largest buyer ofseller-financed income producing
properties in the United Statesand, gosh, going back to 2008,
(00:43):
17 years as we speak, we'vebought more than 700 units with
seller financing.
It has been tried and true, thestrategy that I love the most.
I think it gives the bestbenefits.
But interesting thing hashappened since I started putting
some of these training contentsout on YouTube and on the
podcast here, that we actuallylost at least two, maybe three,
(01:05):
deals in the last two yearsbecause we get a property under
contract and then they wouldtake a look at our YouTube
channel and they'd see ourvideos talking about the great
benefits of buying with sellerfinancing and they go oh gosh,
these guys, this is too good ofa deal.
So I don't know the truth is.
And then I guess they thinkthat we're trying to get one
(01:26):
over on them or something.
I don't know, but that couldn'tbe further from the truth.
The reality of it is if theyactually did listen to those,
even on the buying videos, wealways talk about one of the
things I love the most aboutseller financing and about real
estate in general as aninvestment strategy and asset
class is.
It is one of the few thingswhere you can have a buyer and a
seller walk away from thetransaction table and both sides
(01:50):
can win.
Honestly, I don't think there'sany structure that's more true
than seller financing.
When you really look at it, youknow the banks and the big
hedge funds coming in that arelooking to buy up distressed
properties at pennies on thedollar.
Those are the guys trying torip you off If you're using
seller financing.
If there is a strategy thatexists that benefits both
(02:12):
parties, both sides, more, Idon't know what it is.
So today we're going to talk alittle bit about something I've
never done before.
We're going to show what Ibelieve the top eight benefits
to sellers are.
Anybody out there who's lookingto sell a home or an investment
property for offering sellerfinancing as a strategy?
And before I get into that, asalways, guys, we'd really
(02:34):
appreciate it if you wouldsubscribe.
I'm grateful that we've gotsome good content coming for you
this month, and I love doingthis.
A lot of people ask me why areyou doing the podcast?
Because not only do we not makemoney from it, but actually
cost a fair amount of money andcertainly a lot of time to do.
But I just love doing it.
It's a lot of fun and I loveconnecting with new people that
(02:56):
are like-minded investors andentrepreneurs in my network and
just getting to showcase some ofthe things that I'm passionate
about with you guys.
So if you do enjoy it, if youdo benefit from it, it really
means a lot and it lets me showeverybody that's telling me stop
wasting time with the podcastthat it's worthwhile.
So please subscribe, either onApple Spotify or, of course,
(03:17):
here on YouTube.
And, as always, thank you too.
For whatever reason, everybodyseems to love this show on
Player FM.
You guys are now my favorite.
I had never heard of Player FMbefore we started this thing,
but we've got about 280 timesmore subscribers on Player FM
than anywhere else.
So, thank you guys, keep itcoming, hit that button wherever
you're at.
We really appreciate it.
(03:37):
So let me give you some visuals, guys, and we're going to try
to do this as quickly and aseffectively as possible, and I
could make it pretty for you,but if you're in my network, you
probably care less about thepretty and more about the
numbers, and so just reallygoing to focus on the numbers
here.
And if you're on YouTube andyou can see the video or Spotify
(03:58):
, you'll be able to see thevideo of this.
That'll probably be even morehelpful for you, because I'm
going to pull up just a simplelittle chart that I made here
and we're going to go throughthese one at a time and, as you
can see me scrolling, we've gotsome, got a lot of benefits here
.
So the top reasons that a sellershould consider using seller
financing to market and sellyour property number one that's
(04:21):
probably the most obvious toeverybody if you know even a
little bit about sellerfinancing, and this is probably
by far the biggest benefityou're going to get a premium on
the purchase price.
Okay, so that means and you see, I got a little example here
let's say you got a condo whichI just had, one that actually
gave me the idea to do thiswhere I just ran through it for
(04:42):
the seller off the top of myhead and showed them how much
more they would make over afive-year period if they sold it
to us with seller financing.
This was a condo in Las Vegas.
So these are the real numbersfrom that deal.
So market value let's say yourcondo is $460,000.
So that's what it's actuallygoing to probably sell for in
(05:03):
this scenario.
If you went and listed it for anormal traditional cash buyer or
somebody using bank finance andwe're just going to cash you
out, you probably listed at $500, you listed at $480, you end up
at $450, $460.
If you sell it the normal way,that's what you're going to get.
That's it.
You walk away with $460,000.
You pay your escrow costs, youpay your agent commission, so on
(05:25):
and so forth.
If that's the case, a prettystandard premium that you could
expect to get and this mighteven be low depending on what
markets you're in and what termsyou're offering with seller
financing you can easily get$500,000 for that same property.
That's worth $460,000 cash.
You can jack that price up upto 500,000, get that premium,
(05:46):
and it's a fair thing to dobecause you're offering to take
that money over time with terms.
So now.
So if you just look at it likethat, it's like, okay, you're
making an extra 40 grand, right,that's all fine and that's
great and honestly, that wouldbe worth it in a lot of
scenarios just by itself.
But let's really look at it howmuch extra cash you get, and I
(06:08):
think you're going to be shockeda lot of sellers out there when
you really look at these realsimple numbers here.
So for the sake of argument,we're just going to use these
hypothetical rates With a 5%interest rate and a lot of
people charge more than that.
A lot of them go for seven,eight, even double digits right
now, but let's just say with apretty low interest rate.
(06:28):
So you're making it fair to thebuyer too of 5% in a pretty
standard five-year term.
So that five-year term that'show many years the seller is
acting as the lender andcarrying the loan before the
balloon payment is due.
And then for the down payment,industry standard is 20% down,
which in this scenario of a$500,000 purchase price, 20%
(06:51):
down would be $100,000.
So with interest onlyamortization which very few
people do that, but everybodyshould if you're an investor and
that's what we always try to doyour annual debt service is
going to be $20,000.
And the way you calculate thatis $100,000 for your down
payment on your $500,000purchase price.
(07:11):
That leaves you with a balloonpayment, a note of $400,000, 5%
of that when using interest-onlyamortization.
So you're not paying down anyprincipal with your payments,
you're only paying interest, 5%of $400,000, simple math.
There is $20,000 a year.
So your annual payments to theseller, with seller financing,
(07:35):
are going to be $20,000.
And since none of that is beingapplied to principal, that's
all interest for the seller,that's all cash flow slash
profit, interest earned profitfor the seller.
Ok, so that means, since wegave him one hundred thousand
dollars up front and now theseller, you're getting twenty
(07:56):
thousand dollars a year.
And of course, in this scenarioand any properly done seller
finance scenario, the buyer ispaying all the HOA, all the
taxes, the insurance, all thecost of the property.
So this is a pure if you own it, free and clear, and you didn't
have any underlying note, whichthat's a whole other thing.
We could do another episode on.
You're getting a net $20,000 inpure profit interest earned
(08:18):
income to you every year, sinceit's done for a five-year term.
That's $100,000, five times$20,000, $100,000 in interest
paid to the seller during thefive-year term.
Okay, so we'll talk about thecash flow benefits of that in a
moment too, and some of the taxdeferment savings, but this is
(08:41):
the biggest thing.
So over the course of the fiveyears now let's do a
side-by-side comparison.
If I'm a seller and I sold myproperty for $460,000 cash, okay
, so then I'm walking away.
That's what I get.
I mean, there's no mysterythere I'm walking away with
$460,000, minus, of course, theescrow costs, any selling fees,
(09:04):
agent commissions.
So you're really I mean you'retalking about $420,000 or so,
whatever that would add up towhen you're all said and done.
But we're not going to evenfactor that in because you'd
still be paying agentcommissions and you'd still be
paying escrow fees on both ofthese.
So that doesn't really comeinto play.
So let's just assume for thishypothetical scenario, you're
walking away with $460,000 asyour gross and we're going to
(09:27):
call it our net because we'renot factoring in those extra
fees, like I said.
Okay, so that's $460,000.
That's it.
That's what you get when yousell at cash.
With selling with sellerfinancing.
You got $100,000 up front asyour down payment.
You got $100,000 up front asyour down payment you can take
and do whatever you like with.
Then you got $100,000 ininterest payments during the
(09:57):
five-year owner carry term.
So you've already got $200,000right there.
Then at the end of the fiveyears, because you did interest
only, which is smart for theinvestor to do, for us as
investors to do, because thatmakes your debt service lower,
which makes the cash flow better, which makes your cash on cash
return better.
So this is a win for everybody.
The reason it's good for theseller is now you haven't paid
down that principal at all.
So they're getting that full$400,000 balloon payment at the
(10:21):
end of five years payment at theend of five years.
So $100,000 down payment,$100,000 in interest only loan
payments paid to you as theseller over the five years,
another $400,000 in the balloonpayment paid after five years.
That's $600,000.
So compare the two side by side.
Again, you sold it cash, yougot $460,000 up front.
(10:47):
You walk away, do whateveryou're going to do with it.
Obviously, if you need to buyanother property immediately,
you need every penny you can getright here right now, then yeah
, selling it.
Cash obviously is going to makemore sense.
Cash obviously is going to makemore sense If you're in a
position where you don't have animmediate need for all of that
capital.
You already have your primaryresidence.
(11:07):
You're just going to maybe putit into another investment
property, you're going to put itin your bank account.
There's no doubt this makesmore sense because you're
comparing your $460,000 that youwould have got selling a cash
to $600,000 that you would getover the course of the seller
finance deal.
So that's an extra $140,000,which is around 30% more in this
(11:31):
scenario, and that's a prettygood.
The numbers will obviously goup and down depending on the
purchase price of the propertyand the terms, but that's a
pretty conservative, prettyaccurate percentage.
Over the course of a five yearyou're going to get 30% more.
Now, if you did it, I'll justdo this one off the top of my
head.
As I said, 5% that's a good,fair rate.
But hey, since this one'ssupposed to be for the sales,
(11:53):
what if you really went hardcorewith it and charged 8%?
Okay, so now you are getting$32,000 just doing this on the
fly.
So 8% of your $400,000 note$32,000 a year on your debt
service.
So now, over the five years,that is $160,000.
(12:17):
That's an extra $60,000.
This is why the interest rateis so important.
People rarely think as muchabout the rate and the
amortization.
That's far more important thanthe price.
The price is the leastimportant thing.
The rate and the down paymentare the most important things
(12:37):
for both sides.
That's why we argue about themost.
So now you're getting $160,000over the five years.
So now $660,000 versus $460,000, which, of course, is an extra
$200,000 more, which is about45%.
We'll call it 46%, I think,just real quick off the top of
(13:01):
my head.
Well, now I'm curious to seehow much that is, because that's
going to bug me.
So that's an extra 43.4% inthat scenario.
Now, if you start getting termslike that I mean I guess this is
supposed to be slanted towardsthe seller Then I don't think
it's really a fair deal for thebuyer anymore.
But those are very common,they're out there.
(13:23):
You can charge 8%.
I mean, I think 6% is probablythe most fair number.
We usually try to get three orfour, honestly, and then maybe
you settle it at four or fiveSix is probably the mid-range
you start charging seven, eightor more and then it starts to
become more advantageous just touse bank financing for the
buyer.
So that's just a shocking thing, guys.
(13:45):
So in this scenario you're goingto net over a five-year period
as the seller anywhere from theinitial scenario, the original
scenario we use, with a 5% rateof an extra $140,000 on your
property over the five-year term.
So if you divide that over thefive years, you're making an
extra twenty, eight thousanddollars a year in just pure
(14:06):
profit, pure interest on yourproperty.
Or if you want to charge kindof a mafia style, eight percent
or higher, you can get thatnumber up to as much as an extra
forty, fifty thousand dollars ayear and just pure profit.
It's all profit.
So that's the biggest reasonand that alone makes it worth
doing the other one that we'regoing to touch on briefly here,
(14:26):
these other six to eight reasonsI've got here that are benefits
for sellers.
You broaden your buyer pool.
There's only so many peoplethat are going to buy your
property, even if you have it atmarket value price or even
slightly below market value.
Even if you have it at marketvalue price or even slightly
below market value, bankfinancing right now is pretty
much garbage.
The rates are obnoxious.
The buyer pool is used to theselow interest rates that we've
(14:52):
all been so happy and gratefulfor the last couple of decades
here, or at least the majorityof the last decade and so paying
7%, 8%, when investors are usedto paying two and a half to
five is you know, it's just notgoing to work for you to get the
maximum buyer pool.
There also are some situationsthat, if you're dealing with
this right now, you probablyknow exactly what I'm talking
(15:13):
about and it's probably a bigthing for you A lot of HOAs.
If you're in a condo situationor even any property with an HOA
, it's very common to have HOAlitigation, and if your HOA is
in a litigation situation, or ifthey have any insurance
situations which is also commonit's nearly impossible to get
traditional bank financing, soyou might have to.
(15:35):
So then, if you want to marketyour property in a situation
like that, that means the onlypeople that can buy your condo
or your property are people thatare buying cash, or, if you
want to open it up to sellerfinancing and those people that
are buying cash, everybody who'sapparently so afraid of people
trying to buy seller financingand offer these great terms, you
should really be afraid of thepeople buying cash, because
(15:57):
they're going to beat you up onthe price and then you're just
going to get murdered on theterms, and that's the worst.
So you broaden your buyer pooland I didn't even put this as a
bullet point, but this is a keything for all of us that care
about just being kind andwanting to be a positive part of
somebody else's life in a goodway.
I'm looking at it as theinvestor standpoint, because
(16:18):
myself and my partners,obviously that's what we do as
investors.
But if you open it up withseller financing, you might sell
it to some beautiful youngfamily or old family, whoever it
may be that, for whateverreason, might have credit issues
, or maybe they have good creditbut they're self-employed and
they just can't get good termswith bank financing, and you can
help those people achieve thedream of home ownership, and
(16:38):
that's a blessing too.
It really is.
So if you care about that whichI do and hopefully other people
do too then that's anotherthing too.
So broadening the buyer pooland it obviously by broadening
the number of people that canbuy your property increases
competition, increases the terms, increases the price and
hopefully it speeds up your saleprocess as well.
Next one is another huge one too, which is you can defer the
(17:02):
taxable liabilities, and I'mgoing to combine this with this
one here of possibly minimizingor even eliminating tax
liabilities.
There's a little bit of debateon this.
Having bought and sold againhundreds of these, I've had this
conversation a lot with a lotof really smart people and some
not so smart people, but I'veheard a lot of opinions on it.
Some people think no, no, no,you have to pay all the.
(17:25):
I can assure you you don't haveto pay the full tax on the
purchase price, because if thatwas the case, all these
properties that we bought for10% down, 20% down or less, none
of those deals would havehappened because the sellers
would have been coming out ofpocket.
So you can, at the very minimum, defer the taxable liability.
So instead of in that scenarioabove, instead of paying your
(17:47):
cap gains on a $500,000 salesprice, you could pay your cap
gains on that $100,000 downpayment and then defer the rest
until the balloon payment fiveyears later.
Defer the rest until theballoon payment five years later
.
And there are some people thathave told me some strategies to
where you can actually reducethat taxable liability over that
five-year period with differentstrategies.
(18:09):
I'm not a CPA so I recommendyou talk to your tax
professional about that, butthere are strategies that exist
that are effective, in somecases even eliminating that
liability and converting thenote into other structures to
where you can, at a minimum youdefer your taxable liability and
it is possible to minimize itor eliminate some of it
(18:30):
altogether.
The other one, so the big risk Ihear with sellers is oh gosh,
well, what if they default?
Oh man, I got to foreclose andall that.
And that's the absolute dumbestthing that anybody could ever
say to me, because that would bethe best thing that could ever
happen to you.
So we scroll back up here.
Hopefully this is obvious, butapparently it's not.
(18:53):
Scroll back up here.
So you're selling your propertythat's worth $460,000.
You got $100,000 up front.
In this scenario, with yourdown payment, a lot of people
can get more.
You can ask for $30,000 andyou're getting $150,000.
So you're getting around 23%,24% of your or as much as 30%,
(19:15):
depending on what down paymentyou're getting of your
property's actual value up frontand you're getting the interest
payments for however long youget them.
Let's say you sell it and yourbuyer defaulted after a year.
In that scenario, well, nowI've got all the rates all over
the place, but at 5% you justgot $120,000.
(19:39):
So you got more than a quarterof your property's value in less
than a year.
And now, guess what?
You can foreclose in aboutthree, four months, and now you
can sell that property again.
And then you got your property.
Or you can just keep it, andmaybe all you needed to want to
keep it was that extra 120 grand.
And now you've got it.
And now you just keep it, oryou can just keep it, and maybe
all you needed to want to keepit was that extra 120 grand.
(20:00):
And now you've got it.
And now you just keep it or yousell it again.
We used to do that in the landbusiness 20 years or so ago and
I was selling lots in uh deming,new mexico, in the middle of
nowhere, nevada.
I mean, that was part of thebusiness model is that a huge
percentage of people would buythese lots with seller financing
and then they would default andthen we would sell the same
(20:21):
property you know, half a dozentimes and you don't want that to
happen, but that's the realityof it.
So obviously you do your workon the front end to make sure
you know, because nobody wantsto have to foreclose on somebody
you know acting in best faithand good faith with both parties
.
You don't want that to happen.
So you try to make the termsreasonable, upfront, so that you
(20:42):
don't have to deal with that.
But if you do, even though it'sa sad and stressful thing,
maybe from an investmentstandpoint, it's by far the most
profitable thing that couldever happen to you and you sell
the same home twice and thenyou're really making incredible
returns.
So again we kind of touched onthis monthly cash flow which,
(21:02):
again, if you're doing it withinterest only, amortization,
that's all pure profit.
Okay, unless you have anunderlying note and you're doing
some type of a wrap.
But either way, still it's netprofit to you, whatever your net
proceeds are.
So that's money that you canput into your pocket every month
.
And again, depending on whatyour situation is, if you're
just gonna put this into a CD orthe stock market, you're gonna
(21:24):
earn a similar or lower returnand you're not gonna be able to
really spend that.
You're not gonna get a monthlydividend from your CD.
You're not gonna be able totouch it at all.
It just sits there and grows by2.5% or whatever it is.
With this, you're earning 6% to8% a year in net interest-only
(21:45):
payments to you.
That are pure profit.
That goes right into yourpocket, right into your bank
account, tax-deferred, thatyou're able to utilize for
whatever you need right there.
There's not a lot ofinvestments that you could take
that lump sum and put it into,unless you bought another rental
property, but even then you'regoing to have all the stress and
(22:05):
liability and expense thatcomes with managing a rental
property.
With this, you're just gettingstraight monthly cash flow on a
property.
It's secured by an asset thatyou're intimately familiar with.
That you know better than eventhe person you sold it to,
because it's been your propertyfor however long you've owned it
and you're getting thatconsistent cash flow in your
pocket every month.
I think that's a massive,massive benefit for the right
(22:26):
kind of seller More certaintythat the transaction actually
gets closed.
Okay, what I mean by that iswhen you're using bank financing
and I've had it you know thebigger and the more expensive
the property, the more commonthis is right.
I mean we've sold some prettyexpensive properties and there's
a lot of legwork.
(22:47):
First you got your inspectioncontingency right.
Then you got your buyer'sfinancing contingency, which a
lot of time that runs right upto the close lot of time that
runs right up to the close.
And so even the buyer, largepercentage of the time even the
buyer doesn't really know,because it's not up to them, if
they're going to actually beable to close and because of
that financing contingency theirearnest money is protected
(23:08):
pretty much the entire durationof the close.
And I've had buyers string mealong for months on this bank
financing contingency nonsense.
So when you are the bank, whenyou're doing seller financing,
you're the lender.
You don't have any of that risk.
All of that nonsense goes rightoff the table and you're the
one who has all the control.
(23:29):
You get to decide when theloan's approved.
You get to decide it's approvedfor closing.
All you have to do is collectthe down payment from the buyer
and you're ready to close.
So it dramatically increases.
It puts all the control and thepower for you honestly, as the
seller, to where you're the onewho's going to decide if this
transaction happens.
You're not reliant on so manythird parties with the banks and
(23:51):
appraisals and all thisnonsense.
You are the bank, you are theappraiser, and if you want it to
close and the buyer providesthe down payment, hopefully,
then it's going to close.
So that's a great blessing aswell, and, I already mentioned,
you're earning interest on anasset that we're intimately
familiar with, which is great aswell.
So these are just some of thebenefits, guys.
(24:12):
I hope that helps a little bit.
On the seller side, I hope thatwe talked about enough here to
give you an idea of why youshould at least consider using
seller financing, especiallyright now too, guys.
I mean, again, with the ratesbeing as high as they are, this
is one of the best times in mylifetime to use seller financing
(24:32):
, both as a buyer and as aseller.
So I'm shocked that it's notbecoming more common.
As a buyer and as a seller, soI'm shocked that it's not
becoming more common.
I hope that it.
Well, I mean I'm fine actuallyeither way, because it's such a
blessing to me and my partnersand the people I come in contact
with.
If we're the only ones doing it, then less competition and we
get better terms.
But I really genuinely mean it.
I really hope that this videoproperly illustrates that it
(24:54):
really is a win-win for bothsides.
Obviously, again, there's goingto be some sellers.
If you just need that 400 grandright here right now, you're
going to go buy another houseand you need it, that's fine.
I mean then, yeah, take thecash, you should do that.
But if you're somebody that hasa little more flexibility, got
some options.
There's no question that sellerfinancing at the terms and
(25:15):
again, this is another beauty ofit You're working with a human
being on both sides instead ofworking with a bank, and it's
all flexible.
Every one of these numbers uphere, every single one of them,
from the price to the interestrate, to the amortization, to
the down payment, to the lengthof carry term all of it is
negotiable.
And there's even more levels Icould go deep with it of how you
(25:35):
can tailor it for what you wantand then try to fit that with
what the buyer wants and bothparties can win and it can be a
real home run.
So grateful that you guys tookthe time to watch this or listen
to it.
I hope that it's beneficial foryou in some way, grateful to
have you, as always, in mynetwork and again, if you would
(25:56):
like to make me happy, hit thelike button or the subscribe
button or, better yet, leave mea comment somewhere on what
you'd like to see for some ofour more seller financed and
real estate investing strategiescontent.
That we do because we'd like toproduce more, but we want to
give you what you want to see.
So have a blessed Memorial Dayweekend and we will talk to you
(26:17):
soon.
Thanks so much.
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