3 Easy Steps to Structure Seller Financing with Zero Payments

You want to get into real estate, but you don’t have the capital to make a traditional down payment. You’ve heard about seller-financed real estate deals and thought, “Can I really buy property with little to no money out of my pocket?” The answer is yes, and today I’m going to show you how.

I’ll walk you through what it takes to structure seller financing with zero payments while keeping things simple. I’ll also sprinkle in some strategies and tools to help you succeed and we’ll even look at a seller financing example or two. Ready? Let’s go!

What is Seller Financing?

Before we jump into the deep end, let's get our feet wet. What is seller financing? It's like buying a house with a "Buy Now, Pay Later" option, but way cooler. Instead of going to a bank for a mortgage, you make a deal directly with the seller to pay them over time. It's one of those brilliant real estate investing strategies that can help you buy real estate with no money or at least very little.

The beauty of seller-financed real estate deals is that they open up a world of possibilities, especially for folks who might have trouble getting traditional financing. Instead of going to a traditional lender for a loan, the buyer makes payments directly to the seller over time. In return, the seller holds onto the deed until the buyer pays off the balance.

You avoid the hassles of bank loans, credit checks, and all that paperwork. In some cases, you can negotiate even better terms with the seller than what a bank would offer.

So how does seller financing work? Typically, you'd agree on a price with the seller, make a down payment, and then pay the rest in installments. But what if I told you there's a way to structure this deal so you don't have to make payments for years? Intrigued? I thought so!

How Does Seller Financing Work?

To understand how you can structure seller financing with zero payments, it’s important to know the typical components of a deal. A standard seller financing deal has these elements:

• Down payment: This is the initial money you put down. It could be cash, but in some cases, you might negotiate a way to eliminate or reduce it.

• Interest rate: The seller will typically charge interest on the loan, similar to how a bank would.

• Loan term: This is the amount of time over which you'll make payments. It could range from a few years to several decades.

• Monthly payments: The amount you pay each month. In our case, we want to figure out how to delay or reduce these to zero (at least for a while).

Typically your next question likely is: How do I structure seller financing in a way that makes zero payments possible? 

It all starts with understanding the relationship between price and terms. 

Imagine you're on a seesaw. On one side, you've got the price, and on the other, you've got the terms (how and when you pay). When one goes up, the other goes down. It's all about give and take.

If a seller wants their money as soon as possible, you might be able to negotiate a lower price. But if they're willing to wait, you could potentially pay a higher price over a longer period. This is where the magic starts to happen.

Step 1: Finding The Motivated Seller

Now, for this to work, you need a motivated seller. These are folks who need to sell for reasons beyond just making a quick buck. Maybe they're moving, going through a divorce, or just tired of being a landlord. Whatever the reason, they're more likely to be open to creative solutions.

In my case, I found Cora. She was a widowed retiree in her 60s, struggling to sell her rental property. She wanted to move closer to her daughter in Texas but needed to sell two properties in St. Louis first. Bingo! We had ourselves a motivated seller.

Step 2: Presenting Your Offer

The one thing to keep in mind here is this: if you confuse them, you lose them. 

I keep it so simple, a fifth-grader could understand it. Here's what I said to Cora:

"You know, the market might allow me to get closer to your price if you're willing to take some money now and the rest later. How much do you need right now?"

See? No fancy jargon, no confusing terms. Just a straightforward question that opens the door to seller-financed real estate deals.

Step 3: Crunching the Numbers

Let's break down the deal I made with Cora. She wanted $174,000 for the property, but I couldn't swing that with traditional financing. So, here's how we structured it:

• Seller financing down payment: $17,400 (10% of the purchase price)

• Monthly payments: $990

• Advance payments: First 5 years paid upfront ($59,400)

• Total upfront payment: $76,800

Now, you might be thinking, "Matt, that's still a lot of cash!" And you're right. But here's where it gets interesting. I borrowed that $76,800 from a private lender, who agreed to be in first position on the property. I’ll explain this in a bit.

By paying the first 5 years in advance, I created a 5-year period with no payments to Cora. Meanwhile, I only have to make payments to my private lender. The property rents for $1,400 a month, leaving me with a tidy sum in monthly cash flow.

What are Loan Positions?

When a bank loans money for a house, they record a lien against the property. If the borrower doesn't pay, the bank can foreclose and sell the property to get their money back. When there are two loans, the one recorded first is in "first position" and gets paid first if there's a foreclosure.

In our deal, my private lender is in first position for $76,800, and Cora is in second position for $97,200. But here's the kicker: Cora gets all the money upfront anyway! So even though she's in second position, she's really in second position to herself. It's like having your cake and eating it too!

This deal was a win for everyone involved:

1. Cora got the cash she needed to move to Texas.

2. I got a cash-flowing property with no payments for 5 years.

3. My private lender got a secure investment with monthly returns.

That's what I call a home run!

How to Find Seller Financing Deals

Now that you know how to structure seller financing, you’re probably wondering how to find these deals. Here are a few tips:

1. Look for distressed properties: Sellers who are struggling to sell their property may be more open to creative financing.

2. Network: Talk to other real estate investors or agents who specialize in off-market deals.

3. Direct mail campaigns: Sending letters directly to property owners can sometimes unearth motivated sellers.

How to calculate Seller Financing Real Estate Deals

"Matt, this sounds great, but how do I figure out all these numbers?" Well, I've got you covered. There are plenty of seller financing calculators online that can help you crunch the numbers. Just plug in the purchase price, down payment, interest rate, and term, and voila! You've got your payment schedule.

About seller financing interest rates, in my deals, I typically aim for something that's attractive for sellers, often higher than what they'd get from a bank.

So, to recap, why should you care about seller financing homes? Let’s count the ways:

1. No credit checks (goodbye, FICO score!)

2. No bank appraisals (saves time and money)

3. Flexible terms (like our no-payment method)

4. Faster closings (no waiting on bank approvals)

5. Potential for better deals (especially with motivated sellers)

Your Key to Creative Deals

Look, I get it. This might seem a bit overwhelming at first. But trust me, once you get the hang of it, seller financing real estate can be your ticket to financial freedom.

Want to dive deeper into these strategies? Check out My Escape Book. It's packed with innovative formulas to help you break free from the paycheck-to-paycheck cycle and start building real wealth.

And if you're serious about growing your real estate business, you've got to check out the Epic Blackbook. It's an all-in-one platform with everything you need to manage contacts, capture leads, and automate your follow-ups.

Remember  real estate investing isn't just for the rich and famous. With creative strategies like seller financing, anyone can get in the game. So why not you? Get out there, find those motivated sellers, and start building your real estate empire. Who knows? Maybe just like these successful real estate investors, I'll be reading about your story next!