How to negotiate the math

Real Estate Math When you are making an offer to a seller and there is owner financing involved there are several factors to consider that are negotiable and will affect your final payment.


First start with-
1. The purchase price
2. the interest rate
3. the cash at close
4. monthly payment.

The first you have to do is determine what your exit strategy is. Are you planning on flipping to an investor or an end user? Are you planning to stay in the deal to make monthly money? It better be one of the above. Otherwise why are you doing it? The goal is to make money.

The next thing is to find out from the seller what their hot buttons are. What is more important to you?
1, How much cash you get at the close of escrow?
2. What your total purchase price is?
3. The monthly payment you get for owner financing?
4. The interest rate you get?
5. How long is the financing good for?

These are the factors that can be negotiated. People are not logical. When you find their needs, you can structure the deal that works for them and also for you. If you are looking for monthly cash flow, do you care what the components are? Of course not. Do you care what the interest rate is? All you care about is what the final payment is. A financial calculator is a must in this regard or a spreadsheet that allows you to play what if. You can play with the numbers to make it come out the way you want.

Another factor is the possible balloon payment. There is something called the time value of money. That means that the longer they are willing to wait for the money, the more they will get. If you find out they have a 12 year old, for example, you ask them if they have a college fund. If not, you can talk them into a one lump sum payments i8nn 6 years with no payments until then. How cool is that? You can also do something like that if they are a few years away from retirement.

When I am negotiating even short term financing, I always ask if I can wait 6 months so I can have time to rehab without using hard money, I will offer more. First we agree on what the equity is and then how long they are willing to wait for it. The longer they wait, the more they get. By the way, here are my quick and dirty negotiating rules:
1. What is the price?
2. Is that the best you can do?
3. Would you take?

It/s all about finding the problem and solving it.

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