Today I’ll show you how I followed 5 easy steps to acquire properties with little to no downpayment (and you can too). The process is called seller financing.
Many people I talk to want to get into real estate but don’t have enough for their first downpayment.
They'll say stuff like “I have a goal to buy my first investment property in the next 5 years, I just need to save enough for a downpayment.”
If that's you, read on...
The reality is 5 years from now, life will look very different: kid expenses, cars payments, bigger homes, inflation will all make investing harder to achieve.
I want to shatter your 5 years plans for real estate and help you get started/grow now with lower starting capital.
Let me start by showing you how I did it...
Last year, I got to a point where I was maxing out the number of traditional loans I could take and had spent almost all my disposable cash on investment properties. But I still wanted to grow! So I asked a mentor for advice.
He suggested I explore seller financing. Never heard of it.
He explained that owners will often carry financing when they’re motivated to sell, avoiding a big tax payment that year, or avoiding liabilities that come with ownership while still making money.
This means instead of going to a bank, convincing them to lend to you, paying a 25% downpayment, and having the deal hit your credit… You pay a smaller downpayment, take ownership of the property, and pay the seller monthly installments.
Depending on how motivated the seller is, you can negotiate LITTLE to NO DOWNPAYMENT!
I dug deeper and learned terms for seller financing deals could vary wildly BUT had a simple common structure.
Due diligence period (generally shorter than with traditional loan)
Downpayment (often lower than what banks require)
Interest only payment period
Balloon payment
In other words, you can get into the property you want with less money down, no bank hoops to jump through, and better initial cash flow with low interest-only payments. Boom!
When I started trying to land these deals, I knew I wouldn’t get the terms and talk track right on my first few tries so I just got started and adjusted my terms and pitch as I went. I kept faith that after I got the awkward initial conversations out of the way, I’d land a deal and have a process I could replicate.
So here’s what I did next…
Step 1: Searched Zillow for small multi family properties that had been on the market for a while in my market. I knew I’d struck a good deal when they had dropped the price. I was betting that these folks would be more motivated to sell than others.
Step 2: As soon as I found a potential deal, I scrolled down to the listing agent's phone number and gave them a call immediately. I knew if I waited, it wouldn’t get done.
Step 3: After getting more info on the property and doing quick back of the napkin math to see if it matched my cash on cash return expectations, I made a verbal offer. See the terms I landed on below.
Step 4: Before the call was done, I asked the listing agent if they could “dual represent” me and the seller. This means they would represent both seller and buyer (me) and get 100% of agent commission fees. Great motivation to advocate for me to the seller.
Step 5: Then I sent a simple follow up email with the offer and asked them to present it to the seller.
It took me ~50 calls and ~20 offers but I landed my first deal! A triplex!
The seller was unloading the last few properties of his portfolio. He was feeling unsure about the economy (1 motivation), didn’t want to maintain the property anymore because he was getting old (2 motivations), and wanted to avoid paying tax (3 motivations).
Here are the terms I offered (and he accepted) at first...
Purchase price: $200,000 (gave what he was asking for)
Downpayment: $40,000 (20%)
Interest rate: 5% (interest only for 5 yrs)
Balloon payment: After 5-years
Due diligence period: 30 days
But I wasn’t done yet…
Once he accepted and we were under contract, I went to look at the property and brought a contractor with me. We made a list of EVERY little possible fix.
These weren’t fixes that needed to be made, but gave us enough leverage to negotiate more. I told him I would walk unless we could get the following terms (remember I know he’s motivated now)...
Purchase price: $200,000 (gave what he was asking for)
Downpayment: $20,000 (10%)
Interest rate: 5% (interest only for 5 yrs)
Balloon payment: After 5-years
Due diligence period: 30 days
He accepted and we closed in 30 days. We raised rents to market standards ($800/mo/unit) and now this property grosses $2400/month. An incredible return.
I've repeated this simple process now, and you can too. It's yours to use!
I hope my story and the 5 steps above help you get into your first seller financed deal fast!