The following is an excerpt from “Wealth without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals.”
When you first hear the phrase “subject-to,” it can be a little daunting. Why would anyone break the mold and sell to you in a nontraditional manner? In reality, creative finance is better than the traditional model, as long as the seller understands how it works. It’s your job to educate the seller, answer their questions, and make sure they understand everything they’re potentially giving up with the traditional model.
With the traditional retail model, yes, they can get a cash offer and they can get their listing price, but this comes with a number of cons.
Retail sales mean:
- Commission fees.
- Lowball offers.
- Capital gains tax.
- Delays.
- Rehabs before listings.
- Buyer loan approvals.
- Concessions.
- Repairs.
Not to mention issues where there’s low equity in the house or something like a foreclosure or short sale, which will hit the seller’s credit for a period of seven years. Knowing all these cons will help you eventually develop your own subject-to script, but for now, I want to break down individual objections and how to handle them. Here are some of the top questions you’ll get as you try to explain creative finance, but specifically subject-to and seller financing.
“How did you get my information?”
If you’re using some of the methods mentioned in this book, you may have gotten their information from either door knocking or using county records. Explain that you are a business and explain how you got their information in an honest way.
If they’re in foreclosure, they know it. If they own the property, it’s public record. You’re not on the phone or in person to sell them anything. You’re there to give them money or help them make money. It’s a service, not a solicitation. Treat it as such.
“I don’t want terms. I want cash in hand…”
I generally ignore this initial comment, because it’s the first objection you hear every single time. In Chapter 5, I pointed out that I didn’t even respond when Marvin asked this. I continued to explain the situation to him to make sure he knew exactly what I meant by terms and why I can pay more with terms.
After you’ve explained creative finance, if they still just want cash in hand, you have to find out why. Then you can figure out if a cash offer will work. But you need to know why they need money first and foremost. Then explain capital gains tax and walkaway money (money after commissions and everything else that comes with traditional retail), and make sure you’re on the same page with the potential offer are always lower, so if they take a wholesale deal, it’s often because they really need the money.
“Why don’t you just buy the house the normal way?”
The seller wants you to buy in the traditional manner, because that’s what they’re used to and they like the idea of having a loaded bank account. But once you explain subject-to or creative finance, you can offer more than the other buyers who use this route. You also need to explain that you’re running a business and you can only buy so many houses the traditional way. This is part of the bigger explanation of what it means to use creative finance.
“I want a large down payment.”
“Want” and “need” are two different things. Most buyers will take anywhere from 0–5 percent down and we can generally put the down payment into the purchase price on the back end. This might include making payments at six-month increments, but it’s creative, so do what works for you and the seller.
Give them a few options if you need to as you gather more information. Whether or not they know it, they have a reason for every objection. Try to get to the heart of this objection in order to alter it.
From your perspective, explain that you need to put the bulk of your money into rehab costs, closing costs, holding costs, and any other variables to make the deal work for you. Most importantly, though, if you can’t make it work with your numbers, be willing to walk away. Don’t just do deals to do deals. Build your custom portfolio.
“What is the interest rate?”
As you move through the conversation, they’re going to ask about interest rates, especially if they’re open to seller financing. I generally explain that that is something the “bank” would come up with, meaning I would like for them to make me an offer. I might give an example or talk about the national average, but I want the seller to come up with their own number first so I can negotiate with them.
If we’re doing a subject-to deal, I just take over whatever is currently Proven Scripts for Presenting the Offer 141 in place until the loan is paid off in full. If we’re doing seller finance on a deal where they own the property outright, I’m open to different rates as long as the numbers work in the end.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.