Quiz for you creative finance guys

9 Replies

So I'm going to look at a house tomorrow. Here's the scoop:

The seller is selling the house they are living in to move into a bigger house. The prospect property is owned free and clear.

My task:

• Talk the seller into financing. 

With the given information (and only this information), how would you illustrate to the seller that carrying will benefit them? 

I'm looking for basic statements and generic strategies specifically in regards to talking them into financing. Consider this a hypothetical question. Please no questions back like "Why don't you just offer them cash". 


Here's my first question.  If they are moving into a bigger house, I would assume that house would cost more than their current house they are selling (maybe) to you.  If that's the case, how are they going to pay for their new house?  I'm guessing they need all the funds from the current house for the new one...and maybe even more.

I'm thinking you're not going to get them to finance the sale to you since they need all the money from the sale, not just the smaller amount you would give them up front.  In this case, any advantage to them in the form of principal plus interest to them, is lost.

Joe Villeneuve

With the given information (and only this information), how would you illustrate to the seller that carrying will benefit them? 

You don't! You get more information. 

You get more information. Why are they moving? What are they going to do with the money? How are they paying for the new house? You can ask them leading questions like, "If I could show you how to save some money on this deal would you be interested?" "would you like to keep earning money on this house even after you sell it to me?"

Only by knowing their situation can you suggest an option that would interest them.

I always recommend starting with what motivates the seller. It sounds trivial but so many people forget this step and focus only on what the deal does for them! Do they have the equity pre-spent? Are they looking for an investment? Does it need to be liquid? If so, you have to prove your offer is better than their alternative investment plan on ROI and liquidity. Are they relocating? Do they WANT to be a landlord/mortgagee?

Bottom line... figure out what is driving their motivation to sell this property.  In this case, it sounds like they want a bigger house.  Which I would assume will require proceeds from this transaction (down payment on the new house at least).   Be sure to spin the idea they will have additional income from selling this to you on contract and if you default, they can sell it again [careful with this, keep their motivation in mind].

From your perspective, before you arrive do your homework:  How much is fair market and how much can you pay?   Who pays contract closing fees?  Who pays reoccurring tax / insurance?   How do the payments work out?  Can you offer a balloon payoff (assuming this is an investment property for you) or will you be asking them to fully amortize?

Show them the long-term return at your suggested purchase price, down payment, and interest rate. Explain how the taxes / insurance will be paid. Highlight the perspective balloon date (or pay-off date) so they know when they'll have their capital back.

If you have someone on the fence and you have to "go back to your office" to run the numbers... they may talk themselves out of it by the time you call them back.  Therefore, go prepared with a contract in hand and costing assumptions in mind.  Last piece of advise, be fluent with your contract!  I mean... really fluent!   When asking a seller to sign one of the biggest investment decisions in their lives (typically without any credentials), you do not want them to have the impression this is the first, second, or third time you have reviewed the document.

Remember... You can have the best sales pitch in the world, but until you identify the seller's motivation it will be difficult to make a connection.

Hopefully this helps,


@Joe Villeneuve  

Hey thanks! I thing that pretty much answers my question.

I looked at an amortization calculator and compared the differences and it would equate to them spending about the same amount each month.

Unless... I pay them more interest then they are paying on their new mortgage.

You said the home is free and clear so that mean you are going to need to bring a big chunk of money to the table for owner finance because they can sell for cash verse taking a chance on someone to make payments. 

Joe Gore

@Mitch Coluzzi  

Your assumption is right, and that was what I was trying to portray by saying that they are moving into a bigger house. Their motivation is to get out and get in the new bigger and more expensive house. Their new lender is waiting for them to sell this house before they approve them for the new loan.

I would be looking for them to fully amortize. 

I like what you said about being fluent. Its essential to always have a contract on you ready to be signed.

I really appreciate your input here. Thank you!

@Ned Carey  Thank you for your input too!

Originally posted by @Joe Gore:

You said the home is free and clear so that mean you are going to need to bring a big chunk of money to the table for owner finance because they can sell for cash verse taking a chance on someone to make payments. 

Joe Gore

 I can appreciate what you said about being prepared for the situation at hand. Though,  I'm not going to come right off the bat offering them a down payment. If I can get the deal with out a down payment, that just means bigger margins for me =)

I understand what you are saying, but you need to look at it from the seller's point of view. What is the seller getting by letting you put it under contact other then tying up the property for 30 days hoping a seller will come by when the seller can sell for cash because the home is free and clear. Offer the seller $2000 non refund fee for letting you tie up the property.

Joe Gore

@Ethan Bowen  

Look at it this way.  If you were going to make a trade in baseball, the deal would have to work for both teams.  If team #1 was trading you their starting SS, unless they had another one in the minors, they would need a replacement coming from you in the trade.

If they are selling you the cash for the next house ( their 100% equity) using seller financing, unless they have another source for those funds, like in the bank, they won't be able to by the next house.

Joe Villeneuve

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