This episode reveals how to structure seller-financed deals by reverse-engineering note buyer requirements (20-30% down, max 8-year terms, 10.9%+ interest, credit checks, personal guarantees) to ensure 80 cents on the dollar exits within three months of seasoning. The key insight is planning the note sale before signing docs rather than scrambling for buyers afterward.
Key Takeaways:
- Reverse-engineer note terms from buyer requirements first. Knowing specific note buyers want 20-30% down, 10.9% interest minimum, max 8-year terms, and strong credit lets operators structure deals for guaranteed exits before signing.
- Build premium into seller finance offers to offset discounts. Note buyers pay roughly 80 cents on the dollar, so sticker prices must account for this discount plus full commission and closing costs on the higher amount.
- Cash turnover drives funding business economics over cash flow. Seller finance deals lock up capital needed for acquisitions and complicate vintage accounting when profits can’t close until full note repayment.
Listen to the full episode for the complete strategy on seller finance deal structuring that protects downside while maintaining acquisition velocity.
(Podcast transcript below)
Hi, Chris Duff over at Serious Land Capital vacant land funding partner. today I just wanted to remark on how we would typically approach seller financing offers. you know, so within our funding business, the cash turnover is really the most important piece. you know, if we, if we got stuck in a whole bunch of
seller finance deals, yes, the cash flow that we can generate from routine seller finance sales, yeah, that could become significant, but then our acquisitions naturally would get impacted because we’re just not gonna routinely have as much cash on hand, so we’d either have to inject more equity into…
the business or slow down operations until you know, enough cash flow is generated from other finance sales or just have like a mix of enough of them. But you know, it can also impact the kind of direct calculation of certain vintages that we’re putting together within the business. So
just to break down that piece. You know, I have two other equal equity partners within the business and the way we generally operate is, you know, roughly each year we will be acquiring and then selling assets within the business. And there will be certain hurdles for performance from a profit perspective. And then the kind of final profits are divvied up.
depending on the again overall hurdles that we’re hitting from a profit side and I can get into more of that later the way we strategize on how to do that But because we need all funds in for a particular sale of a property that means if we did a seller finance sale and you know Didn’t try to sell the note We wouldn’t able to close out that vintage because they’re still
outstanding.
Revenue that is expected for that particular property so we can’t fully close it out. So That’s a whole nother discussion there. But just to give you an idea on why you know, we try to Turn around cash on on deals as much as possible whether we’re taking an initial cash or seller finance offer from a potential buyer from or for our various assets within our portfolio
I think a lot of other funders operate similarly, especially those doing equity funding. I know some might try to set up separate funds where they can buy off the cash flowing seller finance note. It’s interesting strategy. It’s not something that we’ve set up fully on our own. It requires a another bunch of funds as well. And you have to be able to feed that routinely. So if you’re not doing that many seller finance sales.
It doesn’t come into play as much. on average, mean, we typically offer owner financing for most properties that we have listed. It’s generally not our preference to go down that route. And I’d say that most offers don’t approach us for that anyway. I mean, we tend to go after higher price properties. You know, our preferred purchase price is above $50,000. And a number of properties we purchase are above $100,000. So
You know, that there just haven’t been as routine of kind of buyers within that pool offering or, making an offer with owner financing in mind, or they’ll try to get a third party lender involved, you know, which is fine for us. Sometimes they can be a pain from a title company closing perspective, but, you know, at least we get paid from, you know, upfront with another third party lender.
Involve there. I know some other land operators will have different Different experiences there, but you know, I can only remark in terms of the type of offers that we tend to get plus we you know primarily list on MLS land calm and You know that might impact the type of end buyers that you might get interested within your various properties
So, even though we offer it, you know, if we do get some interest from our finance perspective, again, I’m always going to want to reverse engineer my anticipated table close of selling the note or, you know, selling the note within, you know, roughly three months of seasoning will be generally what we’ll target on the high end there. So,
If you can set up the note properly for an anticipated note buyer and so we keep a couple on hand that we kind of know what terms to look like or look for. A friend of ours, Eric Traga, I know he’s well known within the
land investing space, he routinely buys notes. so, um, and he has a very savvy operator has a good mind for, for numbers. So, um, you know, I tried to look for reliability from these type of folks and, know, usually he’ll want, at least from my understanding, uh, for more recent conversation, um, you know, uh, rarely would want to go beyond like 150 K in terms of a
overall note purchase but you know around that threshold or below we could potentially get paid 80 cents on the dollar of the
You know price that our buyer is is paying, you know sticker price for an owner finance perspective and then just understanding, you know Eric’s terms for instance and you know, some other note buyers might look for similar things of you know, maybe 20 to 30 percent down Max eight-year term, you know 10.9 percent interest at a minimum with a credit check and a personal guarantee You know, even if we were doing a note I
probably do something similar. I’d probably even want to try to cut the years down even more if I could. But and probably bump the interest up a little bit more just because you’re the hurdle rate for inflation plus monetary debasement of US dollars that roughly equals 11 % per year anyways. You’re basically just breaking even on interest even that high. So to me, I would try to get a bit more premium if I’m going to be taking risk.
from a lender position anyway. But you know, that’s kind of baseline numbers. So then I’ll know anytime an agent might bring us, hey, somebody’s asked about owner financing terms, I have that on hand and I can have much greater reliability for if this person, you know, makes an offer here that I’ll already have a tableclosed note buyer ready to go that’s going to…
you know, offload that note and we can, you know, have a very kind of conservative estimate for the quality of that potential buyer. You know, you could take different approaches to, you know, come up with your own terms. Maybe you can scout across paper stacks, see what’s moving more routinely, or maybe other note buyers that you know might look for different types of terms. But, you know, the actual terms don’t matter.
in so much themselves, so long as you do know how you could exit that particular note. What’s way riskier is you just come up with whatever terms on your own, sign all the docs, basically close the owner finance deal and then start looking for a note buyer. I if you’ve done it before and done it successfully, great, go for it.
Otherwise, yeah, it’s going to be more conservative if you can just reverse engineer the terms for what you know other notepayers are looking for. So that’s generally how we’ll approach it. And if we can’t get a firm confirmation from a notepayer, we’ll just back out of the deal. Like I’m not going to take the risk or then maybe I’d have to get on a paper stack. Who knows how long some of those could.
could sit or maybe just screwed up the terms, the asset for whatever reason wasn’t that attractive for other individuals who might be looking for these type of notes. So that’s just something else that I’d want to keep in mind there. And even with all that in mind, we haven’t actually gone down that path to table close or even sell off a note, like ultimately all the other properties that we
purchase a cash or a cash offer or a third party finance offers ultimately come into play. Like, yeah, we’ve definitely entertained similar financing. just, even when we offer it, they don’t tend to be as routine for the typical assets that we’re selling and the buyer pools that seem to be looking at our properties. Yeah, there could be other avenues. You can build more velocity. I know some people do seller finance all day, every day.
and have a lot of success with it. It just, hasn’t really been a core feature of our business thus far. You know, that might change, but you know, I want to give you an idea on how we approach things so we can still understand what our anticipated exit is. And that’s the thing too, is if you’re going to take a seller finance offer, you know, again, ensure that you’re looking at like an 80%.
cash on cash return from whatever that sticker price is that the buyer is going to take. That’s why usually you’ll want to build in a bit of a premium for accepting an owner finance offer, because keep in mind too, if an agent’s involved, you’re going to need to pay the commission on that sticker price plus closing costs on that sticker price, not on that 80 % exit that you’re anticipating.
post discount from a note buyer. So your percentage closing costs are actually gonna be higher relatively compared to, you know, if you just close cash at that number. So you’ll wanna bake in a bit of a buffer when that is in mind. And same thing too, you know, if you were to, you know, not even try to sell a…
A note off to a note buyer is that you’d have to pay all that commission and everything upfront out of that down payment that you’re getting. So all of a sudden you can be getting way less in the door, assuming an agent assisted with bringing that offer to the table in the first place. So a whole bunch of considerations. Hopefully this one was helpful today. SeriousLand.Capital for any of your funding needs within the land space. Zero cost.
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