How to Arrange and Negotiate Seller Financing

Seller financing is very important – it gives us, the investor, leverage and can help make building a real estate portfolio easier and more lucrative.


Here are some ideas, suggestions, and systems that I have used over the past 40 years of investing – maybe they will give you some ideas also.

Principal mortgage – give the seller the price he is asking, or a little more – ask the seller to take back all or part of his equity in a principal mortgage – this is a mortgage without interest – agree to pay seller X$ until paid off.

Always write into the mortgage (interest or no interest) that the loan is fully assumable without qualification – this will allow you to sell the property subject to the existing mortgage – if you are in for no interest – you can arrange your seller financing with interest. Remember real estate is a gift that can keep giving years after you sold it.

Split Notes – explain to the owner some of the benefit of seller financing – delayed capital gains payments – that you can split notes – that is if seller takes back $100,000 mortgage – he can have 4 $25,000 notes that he can use as down payment for another real estate, sell one if he needs the money, keep them for the interest payments – give one away to a kid going to college or use one or more in a real estate trade. Sellers are concerned about getting paid – give the seller 12 post-dated checks for the monthly payments. Now he just needs to cash a check each month when the payment is due – no need to wait for the mailman. Write in an early payment discount in the event you sell the building and pay off the seller financing Use a stutter clauses – allows you to miss one payment a year.

Build in a substitution of the collateral clause – that means you can move the security of the mortgage to another property with equal or greater equity when you sell without having to pay off the existing mortgage – therefore not having to pay off the mortgage gives you more cash at settlement.

DON’T ask for seller financing – it is SO easy for the seller to say NO Way – BUT write it into the offer – it will be much easier for the seller to understand. If the seller resist seller financing – build in a short-term balloon 6 – 12 months Let the seller know he can make more money (in interest) if he helps you will financing Give the seller some great references (financial and testimonials) sellers like to deal with people they trust and like. So make friends.

Offer to give the seller a pay-off bonus if you sell the property before the mortgage is due – offer a 10% bonus.

Make the seller your partner (known as a Hybrid offer) offer to clean up the building – he gives you the deed and you split the profit in the future.

Ask the seller to refinance – you take over the mortgage (subject to) – he gets the cash and you get the building for nothing down.

Offer to give him something he wants – a car – a truck – a plan ticket – those items are easy to financing – seller gets a truck and you get the house and the payments on the truck.

Offer seller additional collateral – another house you have, or your mother’s house – offer a co-signer. Appeal to the seller – I am new help me – I have good credit – I am trying to get started —- I have a cosigner.

Offer to lease the house for X$ – all payments apply to the purchases – make sure you have immediate possession.

Buy subject to the existing mortgage – give seller a note for their remaining equity

Offer the seller a note, unsecured for the full price of the property – no interest – self-liquidating mortgage.

Offer to pay their credit card debts in exchange for the equity in the house.

Just some thoughts on seller financing – have fun – this is a wonderful business.

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