PART 1: Structuring Owner Finance Offers—Win-Win or No Deal

Here’s a great question I heard from a student recently on one of our Inner Circle calls about owner finance offers: 

“Could you discuss the terms and the best way to structure an owner financing offer? I know these work best when the property is free and clear, but I’m a little unsure of how to determine the best terms.”

It’s an absolutely perfect question, but more than I should cover in a single post. So, I’m turning this into a two-parter.

In today’s edition, I’ll walk through why and how it makes such good sense to make clear, compelling owner financing offers to certain sellers, and why I always structure them as a win-win for both parties on both sides of the table — or no deal.

So, before we get into the specifics of possibilities for structuring those kinds of offers, I’ll cover the tail end of the question and work backwards. 

By the way, we answer questions like this in my Private Inner Circle on a regular basis. To learn more and join this exclusive group, go here.

OK, The Best Terms For Owner Finance Offers…

Fundamentally, every aspect of real estate falls into 2 buckets for negotiations.

One is price. And that’s not complicated, of course, we can negotiate that. 

The second is terms. And by terms, I mean earnest money deposit, time till close, contingencies or the lack thereof… all the items that make up the quality of an offer beyond just the price. 

So if we’re selling, we want to be very cognizant of this when we look at our offer from the buyer. And when we’re buying, we want to be very cognizant of this because we can only assume that the seller is going to be relatively savvy. It’s not our job to educate the seller, but we should at least assume they’re savvy. And if we find out differently, fine. 

But the point is: There’s a whole lot more to the quality of an offer than just the price.

So, when you’re selling, the price is interesting, sure, but you want to be looking at those other items — earnest money deposit, time till close, contingencies, that sort of stuff. 

And by the way, if you’re in an environment where you and another buyer are competing for the same property, the normal place your mind goes to is to compete on price and then start a bidding war. And everyone but the seller loses when there’s a bidding war. 

So, I recommend: If you have another buyer, start negotiating the terms. Don’t mess with the price. Make your offer so much better in ways other than the price.

And consider the possibility that you might receive an offer and the price is awesome, but the rest of the terms are lousy.

On To Seller Financing…

Now, let’s get to the other part of the question — about terms in a real estate negotiation when there is seller financing involved. Now we’re talking about interest rate, amortization (if any, it could be interest only), down payment, the length of the loan (30 years, 20 years, etc.), possible balloon payment… 

An example of a balloon payment would be that you negotiate a 30-year amortization. So, your payment is based on a 30-year gradual payoff, but you might have a 5-year balloon in there because the seller knows they’re going to have a need for the money in about 5 years. So, whatever the outstanding balance is after the 60th month — it comes due and payable. (Unless, of course, you negotiate with the seller at that time to continue the payments.)

There’s such incredible flexibility when you’re putting stuff like this together.

It can be a little confusing or overwhelming, but I’m going to recommend you internalize it as fascinating, super-exciting, and your greatest potential opportunity to create a win-win scenario where it really matters… where what the seller gets and what you get means you both win. 

In My Theory Of Negotiation, It’s Win-Win Or No Deal. 

I’m always willing to give, because the seller needs to feel like they got something. We want the seller to feel that they were not taken advantage of.

I will tell you, though, if what you consider to be win-win is unacceptable to the seller or what will only work for the seller is for them to win and you to lose… it might be time to walk away. But you’d be walking away with power, which you never ever want to give up. 

We want to be negotiating from a position of strength, where we’re the ones who have the “walk-away power.” 

Whoever is willing to walk away from a negotiation, who’s OK with there being no deal… is the one who’s truly in control. 

This Brings Us To The End Of Part 1 Of Structuring Owner Finance Offers

Stay tuned because I’m bringing you Part 2 from this question soon. 

I’ll cover info including:

  • ways to structure these deals
  • subject to
  • wraparound mortgage
  • 0% interest
  • and more!

Until then, be well and please leave your thoughts about structuring owner finance offers in the comments!

Regards,

Cam Dunlap

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2 thoughts on “PART 1: Structuring Owner Finance Offers—Win-Win or No Deal

What is the point of calling it a 30 year gradual payoff with a 5 year balloon, when after 60months you are going to have to payoff the full amount? Is it so the first 60 payments are lower in amount, is that why?

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