In my conversation with Nate Tanner, who specializes in hassle free seller financing, he shared how he stumbled into his current business model by being resourceful during the 2007-08 real estate crash. He explains why his seller financing strategy is a great way to make the most money while doing the least amount of work.
When the housing market crashed back in 2007-08, Tanner was stuck between a rock and a VERY hard place. He controlled 6 properties that had hard money loans at 18% interest! Most people that were facing similar situations defaulted on their loans, and the banks took their properties back. However, Tanner says that he was too stubborn to do that and instead, he went into resourcefulness mode. As a result, he was able to find a strategy that would allow him to salvage the situation. He brought in 6 partners that could qualify for bank loans and sold each property to an individual partner. Then, he deeded the properties into an LLC that was a joint venture between him and the partner borrower. Finally, they sold the properties via seller financing so that they could sell them above the market value.
After successfully navigating his way out of this disastrous situation, he realize that if this strategy worked with properties that were way underwater, how great would it be if he bought properties the right way from the beginning, and then followed the same process? Therefore, out of a seemingly disastrous situation, an amazing, hassle free trick was born.
The main reason why Tanner likes this strategy is because it allows him to wring the most out of a real estate deal. For example, let’s say he finds a deal, runs the numbers, and determines the following:
At this point, Tanner has the option to follow 1 of 4 strategies, one of which being the hassle free seller financing strategy that is his current business model:
Tanner could quickly wholesale the deal for $75,000, making the spread, which is $5,000
Tanner could flip the property, having an all-in cost of $100,000 and sell for $140,000. After commission, closing costs, and carrying costs, he would make a profit of $25,000.
Wholetailing is a cross between wholesaling and retail. Therefore, Tanner could clean property up, put it on the MLS, and walk away with a $15,000 profit.
The strategy that Tanner would actually follow would be the hassle free seller-financing model. He cleans the property up, to the same degree that he would if he were to have followed Strategy #3 – Wholetailing. However, instead of putting the property on the MLS, he sells it as a seller finance deal and explains that it needs work. Typically, the work required is minor, but he applies the same strategy to major fixer uppers as well.
Following the example, Tanner would put in $5,000 in renovations and sell it for $105,000. At that point, the big key is to bring in a private lender and borrow the $75,000 at 6% from them to get all of his money back ($70,000 purchase price + $5,000 renovation budget), and then sell it to a buyer with $10,000 as the down payment and at 8% interest.
After completing the sale, he has made the $10,000 upfront, and on top of that, he makes the monthly spread between the 6% interest paid to the private lender and the 8% interest he receives from the buyer, which over a 10-year period would come out to another $40,000
When comparing all 4 strategies, Tanner’s hassle free seller-financing model results in a $50,000 profit, which nets him twice as much as the flip, 10 times as much as the wholesale, and over three times as much as wholetailing.
If you don’t need a big chunk of cash right now, then Tanner’s hassle free seller-financing strategy is a great way to get the most money with doing the lease amount of work!
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.