Comments on: Why do so many sellers reject my offer, when I ask for owner financing? http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html Real Estate Investment Information Thu, 20 Nov 2008 19:48:21 +0000 http://wordpress.org/?v=2.2.2 By: Bryan Casteel http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-35 Bryan Casteel Sun, 26 Feb 2006 04:54:36 +0000 http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-35 You are correct that it is a rare case that a seller will defer their principal to their heirs, yet the concept alone opens a great discussion with the seller about the options available to them. Out of the most common ways to creatively acquire properties (sub-to, land contract, least/option) I do more land contracts than anything else. In my experience, I am able to receive very favorable terms if I just ask (as long as I am still solving their problem). The most motivated sellers don't really care about interest rate but how they are going to get out of their problem. That being said, I usually place a 3% rate on the contract as I thought the IRS will assume a rate if none is given. I am amazed that you are borrowing at 1% right now. Have you thought of loaning back out and getting an interst rate spread. I am paying 8.5% and 1 point on my rehab loans and something around 5% interest only on my longer-term hold loans. You are correct that it is a rare case that a seller will defer their principal to their heirs, yet the concept alone opens a great discussion with the seller about the options available to them. Out of the most common ways to creatively acquire properties (sub-to, land contract, least/option) I do more land contracts than anything else. In my experience, I am able to receive very favorable terms if I just ask (as long as I am still solving their problem). The most motivated sellers don’t really care about interest rate but how they are going to get out of their problem. That being said, I usually place a 3% rate on the contract as I thought the IRS will assume a rate if none is given. I am amazed that you are borrowing at 1% right now. Have you thought of loaning back out and getting an interst rate spread. I am paying 8.5% and 1 point on my rehab loans and something around 5% interest only on my longer-term hold loans.

]]> By: Administrator http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-34 Administrator Sun, 26 Feb 2006 02:25:08 +0000 http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-34 Good example of how to use owner financing appropriately. And you're right about concentrating on the seller. Still, you're talking about a relatively rare scenario. How often do you find a motivated seller with equity that is willing to delay cash out for the rest of their lifetime? Doesn't happen often for me. Also, motivated sellers will rarely offer me better terms than the bank on residential purchases. I'm borrowing right now at 1% interest. Few motivated sellers are willing to beat that. Good example of how to use owner financing appropriately. And you’re right about concentrating on the seller. Still, you’re talking about a relatively rare scenario. How often do you find a motivated seller with equity that is willing to delay cash out for the rest of their lifetime? Doesn’t happen often for me. Also, motivated sellers will rarely offer me better terms than the bank on residential purchases. I’m borrowing right now at 1% interest. Few motivated sellers are willing to beat that.

]]> By: Bryan Casteel http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-31 Bryan Casteel Sat, 25 Feb 2006 18:24:09 +0000 http://www.realestateanswered.com/why-do-so-many-sellers-reject-my-offer-when-i-ask-for-owner-financing.html#comment-31 Jon, I appreciate your point on the appropriateness of owner financing in many situation, and in my experience it is a little more available than your article suggests. I don't think that this is because of less competition where I live (Cincinnati) but rather because owner financing is sometimes the best solution for the seller. I have a lot of luck with creative acquisition because I have taken the time to fully understand how it all works. Since I understand the concepts very well, I am able to structure a solution to the seller's problems. As you correctly state, though, the best solution is often a cash purchase. The key is to know how to provide the best solution for the seller - not yourself. One very good example is your own negotiations with this 86-year-old who is liquidating his portfolio. Depending on his current capital needs, the best solution for him may be to sell on terms and not for cash. Many times an older investor will liquidate in order to get out of the headache, not the investment. If he would like to continue to receive cash flow but he wants to rid himself of the headache of being a landlord, then you can purchase the properties from him on a land contract (contract for deed). If he sells for cash he will have to pay a large amount of the proceeds to Uncle Sam in the form of capital gains and recaptured depreciation. On the other hand, if he sells on a land contract, he will only have to pay capital gains on the portion of payments made to him that represent principal and of course there will be some taxable interest gains as well. This can be much more palitable for someone than paying one HUGE check to the government. As an estate planning tool, this gentleman can allow the land contract to run past his death, at which time his capital gains would be wiped out and his heirs can receive the remaining principal of the land contract without tax (they still have taxes on the interest paid of course). Depending on his needs this may be the best solution. Jon,

I appreciate your point on the appropriateness of owner financing in many situation, and in my experience it is a little more available than your article suggests. I don’t think that this is because of less competition where I live (Cincinnati) but rather because owner financing is sometimes the best solution for the seller.

I have a lot of luck with creative acquisition because I have taken the time to fully understand how it all works. Since I understand the concepts very well, I am able to structure a solution to the seller’s problems. As you correctly state, though, the best solution is often a cash purchase. The key is to know how to provide the best solution for the seller - not yourself.

One very good example is your own negotiations with this 86-year-old who is liquidating his portfolio. Depending on his current capital needs, the best solution for him may be to sell on terms and not for cash. Many times an older investor will liquidate in order to get out of the headache, not the investment. If he would like to continue to receive cash flow but he wants to rid himself of the headache of being a landlord, then you can purchase the properties from him on a land contract (contract for deed). If he sells for cash he will have to pay a large amount of the proceeds to Uncle Sam in the form of capital gains and recaptured depreciation. On the other hand, if he sells on a land contract, he will only have to pay capital gains on the portion of payments made to him that represent principal and of course there will be some taxable interest gains as well. This can be much more palitable for someone than paying one HUGE check to the government. As an estate planning tool, this gentleman can allow the land contract to run past his death, at which time his capital gains would be wiped out and his heirs can receive the remaining principal of the land contract without tax (they still have taxes on the interest paid of course). Depending on his needs this may be the best solution.

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