Owner Financing Offers – Positioning Your Offer to Get Your Desired Outcome!
Positioning Multiple Owner Financing Offers To Get Your Desired Financial Outcome!
One of the great things about owner financing (also called seller financing) is the flexibility and creativity that is available to both buyer and seller as they try to create a set of terms and conditions to purchase a home. You can make multiple owner financing offers to steer the buyer or seller towards your desired offer.
If the buyer is working with a traditional lender for a bank mortgage, their financing options are largely limited to whatever is on the lender’s menu and typically, buyers gravitate to a 30yr fixed mortgage. At the same time, all the seller can influence is the end sales price.
With Seller Financing there is a much higher degree of flexibility for buyer and seller to negotiate mutually agreeable terms:
- Sales Price
- Down Payment
- Loan Term
- Loan Type
- Amortization Period
- Interest Rate
As such, you can create multiple owner financing offers with different terms
Buyer and Seller Motivations
Owner Financing Buyers and Sellers are typically motivated by different things depending on their current financial situation or future housing and financial objectives:
Buyers tend to care primarily about:
- The size of the down payment
- The size of the monthly payment
- Will they be able to payoff their balloon Loan (if used)
- Sales price is usually towards the bottom of their list
Sellers tend to care primarily about:
- Sales Price
- Monthly Income
- Total Income over the life of the loan
At the Seller Finance Center, we teach a 3-offer approach to making Owner Financing Offers and positioning the offers in such a way to steer the buyer or seller to your desired outcome!
For a Buyer making offers to a Seller:
We generally recommend making 3 owner financing offers, each optimized around a specific financial value proposition for the seller with the rest of the terms optimized for the buyer:
- Offer 1: Full Price
- The Seller gets their full asking price!
- Offer 2: Quick Cash-Out
- The Seller gets a short loan term and/or a large down payment
- Offer 3: Maximum Income/Return
- The Seller gets the maximum income each month or over the loan period
Example: The Seller has their home listed for $150K
- Scenario 1: After 6mo, the home still has not sold and they have not been getting many offers. They are stuck on getting a specific sales price
- Seller Motivation: Get their desired sales price
- Scenario 2: The Seller is an empty nester or retiree looking for monthly income
- Seller Motivation: Maximize their income
The Buyer presents the multiple owner financing offers:
Full Price Offer: $150K sales price, $10K down, 6% interest, 10yr Balloon w/30yr Amortization
- This offer is designed to grab the attention of a seller stuck on their sales price. This offer is a lifeline for them!
- The buyer can then propose other terms (length of loan, interest rate, down payment) that are more favorable to the buyer.
- The seller will receive $839 a month for P&I which is about $228K in payments over the 10yr term
Cash Out Offer: $140K sales price, $20K down, 6% interest 5yr Balloon w/20yr Amortization
- This offer is designed for sellers who are a bit nervous about Seller Financing and is structured to give the seller a larger upfront down payment to increase their confidence and a relatively quick payoff
- The Seller will receive $989 a month for P&K which is about $178K in payments over the 10yr term
Maximum Income: $130K sales price, $10K down, 7% interest 30yr fixed
- This offer is designed for sellers who don’t need to cash-out now and want to maximize their income
- The Seller will receive $297K in payments over the 30yr term (As much as $800 a month in income!
Hopefully, you can see how buyers can structure different offers to appeal to different types of Sellers! You can also fine-tune your offers to steer the seller towards the specific offer you as the buyer wants to them to accept!
For a Seller making offers to a Buyer:
We recommend a similar 3 offer approach when a Seller is proposing terms to a buyer.
Offer 1: Low Down Payment:
- For buyers with limited cash reserves
Offer 2: Low Monthly Payment
- For buyers with more cash reserves but limited monthly income
Offer 3: Longer Loan Term
- For buyers unsure of how/when they will be able to refinance.
Same Example: The Seller has their home listed for $150K.
When engaging a buyer, the seller presents the following offers:
Low Down Payment: $150K sales price, $10K down, 7% interest, 10yr Balloon w/20yr Amortization
- This offer is designed to incent buyers with lower cash reserves
- The seller can propose terms such as (length of loan, higher interest rate, full sales price) that are more favorable to the buyer
- The Seller will receive about $223K in payments over the 10yr term with a monthly P&I payment of $1085.
Low Monthly Payment: $145K sales price, $25K down, 6% interest 5yr Balloon w/30yr Amortization
- This offer is designed to minimize the buyer’s monthly payment as much as possible by reducing principle and using 30yr amortization
- The seller can propose relatively high sales price and a larger down payment.
- In this scenario, I show a short 5yr term but the Seller also has the option to choose a longer term if they want to maximize their income.
- The Seller will receive about $180K in payments over the 5yr term with a relatively low monthly P&I payment $719 per month for principle and interest)
Longer Loan Term: $140K sales price, $10K down, 7% interest 30yr fixed
- This offer is designed for buyers who have solid income but limited ability to eventually refinance.
- This offer works best coming from Sellers who don’t need the money right away and they will have a lot of freedom to modify the other terms to be more favorable to them in order to maximize income.
- For the terms showed above, a Seller will receive about $321K in payments over the 30yr term, $865 per month in income.
One last, real life, example that shows this tactic. My wife and I actually live in a home we purchased with seller financing!
- The seller wanted $275K for a very beat-up old home that needed extensive remodeling. It was over-priced given the work required but we liked the neighborhood and thought it had potential. We were also a bit short of cash as we had a lot of active projects at the time. So, we decided to try making a seller financing offer.
- We made 3 offers similar to below:
- $275K $0 down. 5yr balloon (6%). Total Payments: $346K
- $255K $20K down. 5yr balloon(6%). Total Payments: $302K
- $235K All Cash Total Payments: $235K
We built the offers to incent the seller to go for the 100% seller financing option by highlighting the total payments made during life of the loan.
- This seller was stuck on their sales price AND we sweetened the offer by demonstrating he could also maximize his total ROI over the 5 years with the 0% down scenario.
We now live in that house and refinanced after about 2yrs but not having to pay cash or use a bank allowed us to move very quickly and have cash free to rehab the property to our liking.
Negotiating the terms for a seller financing home sale creates opportunities for both buyers and sellers to structure favorable terms.
If you have a clear head around what your financial objectives are and are also perceptive enough to understand what the other parties motivations are, you can develop a 3-offer proposal that can “steer” the buyer or seller to your desired offer.
Presenting multiple owner financing offers, structured to focus on the other parties hot-spots and steering them to the offer you like the best, can be a very effective strategy in seller financing negotiations.
We hope to see you at the Seller Finance Center soon!