Real Estate Investors Association of Greater Cincinnati

How I Got My Brain Around 0% Financing


      I’ll admit, I had an advantage over many of you when I got started in real estate:

     I had no money and no way to get any.

     I was just out of college, effectively self-employed, had a mountain of debt weighing me down, and had no assets that I could borrow against. Let’s just say that the nice bankers I met with were anxious to work with me…in a couple of years.

     How is any of that a good thing?

     Well, it meant that it was “Creative finance or die” in Venaworld. I had no choice but to offer to assume loans, or buy on land contract, or ask for seller carrybacks, or some combination of those things, if I wanted to buy and hold a property.

     But for many years, I had a limiting belief about seller financing: that the sellers who did it did it for the same reasons that banks and private lenders do: for the “return on investment”.

     In other words, I thought that they were doing math in their heads that went something like:

     “If I sell this house for $100,000, I’ll put that money in a savings account and earn 2% interest. If I let her make payments on the $100,000 purchase price at 6% for 20 years, that’s a much better investment. In fact, even if I let the interest payments from the bank compound, I’ll only earn $48,000 from those, but I’ll get $71,943 in interest from her, and if I put THOSE payments in the bank at 2% as they come in, I’ll end up with $86,501.23 in total profits just from the interest earned!”

     Yep. I thought sellers were doing algebra and deciding whether or not to take my offer based on the results.

     Silly me.

     Silly, silly me—because that belief led me to pay a lot of interest to a lot of sellers that, as it turns out, I didn’t need to.

     It turns out that most sellers don’t agree to carry financing when they sell their properties because they look at that financing as in investment.

     Sellers do not, after all, ‘make you a loan’ to buy their house.

     Instead, they trade you their house (or condo or mobile home or apartment building) for a promise: the promise that you’ll make monthly payments on it.

     And the reason they do that isn’t that they love the interest rate you’ve offered; it’s because the property is a problem to them, and because you’ve offered a solution to whatever that problem is.

     I started to ‘get’ this lesson when I noticed that every time I offered a seller payments to buy his property, that seller had only 2 questions:

  1.      How much payment?
  2.      For how long?

     Notice the missing question?

     It took me a while, but I finally did.

     It’s, “What’s the interest rate?”

     I was never asked that question (unless the seller was an ender who was intentionally converting his real estate to notes, or, occasionally, by sellers who were also CPAs or mortgage brokers or similarly finance-centric professionals).

     I, in fact, was always the one proposing the interest rate, because in MY head—not the seller’s—that was an important factor in his decision to accept terms. And as a result, I was always proposing higher-than-market interest rates because, I mean, OBVIOUSLY, that would be a huge motivator for the seller, right?

     As it turns out, wrong.

     I was making a key mistake that we all make at one time or another: thinking for sellers. Trying to get them what we think they should want, instead of what they do want.

     So I stopped, cold turkey.

     I stopped talking to sellers about interest rates and simply told them about the higher price I could pay if they’d consider taking x payments of $y instead of cash.

     I told them about how, if we did this, I’d be taking on ALL the expenses, including the taxes and insurance and maintenance and rehab, starting as soon as we closed.

     I told them about how, if we did it this way, we could close in a matter of days, and they could stop thinking about the headache this property was giving them.

     And they said yes, just as often.

     I’ve done lots of 0% interest seller financing since the day I got out of my own head and started talking to seller about what they wanted, instead of what I thought they wanted.

     And maybe you should, too.

     I did have another advantage when I started negotiating 0% seller carrybacks: I already knew how to identify the sellers who were most likely to do it, and how to evaluate the deals themselves to determine what payment they could ‘afford’, and how to write up the offers and the mortgages and the notes and close these deals right.

     Luckily for YOU, you can learn all of that in an all-day Intensive I’m teaching on Saturday, February 26th, online. It’s shockingly cheap, and you’ll have all the techniques AND the sample documents you need to do these deals at the end of the day. You can find out more and get your link to join in HERE.

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