Industry Social Media and Updates

Leverage Small Deals by Turning Sellers Into Banks

"If you owe the bank $100, that's your problem. If you owe the bank $100MM, that's the bank's problem" What people don't realize is that you can create this exact scenario with way less money Let's say you're looking to buy a $2MM property. Obviously there's no way to take out a $100MM loan on a property this small, but you can change your counterparty so the loan amount is equally significant to them Instead of using a bank, you opt for seller financing. At 75% leverage, that would be $1.5MM That seller is now "the bank". Just like $100MM is a lot for a bank, $1.5MM is a lot of money to most individuals So you now have an insane amount of leverage over "the bank". Anytime you want to modify the loan, extend the loan, ask for forbearance, odds are they're going to say yes First of all it's a lot of money to them and they're scared of losing it if things go wrong. But secondly, they're also unsophisticated and aren't used to being a lender so they don't even know what to do to you if things go wrong (are they even going to charge you default interest, do they even know how to foreclose, etc) So even when you don't have much capital yourself, you can create scenarios where you have a ton of leverage over your counterparties. This doesn’t mean that you have to work this leverage all the time or that you should be a bad business partner, but it’s great to have in your back pocket When I was starting out, I did a ton of seller financing deals and was able to negotiate some crazy loan terms because of the high amount of leverage you have over the seller On one deal I even negotiated for interest payments to be suspended if the occupancy dropped below 80% Create scenarios where it's the bank's problem, not yours