I recently did a training session with my team on owner financing fundamentals. If you’re new to seller financing or want to sharpen your negotiation skills, this breakdown covers what you need to know.
What is Owner Financing?
Owner financing is when the seller holds the mortgage and receives payments from you instead of getting paid all at once. It opens up more deal opportunities because you can make higher offers to sellers when you’re not paying all cash upfront.
Benefits to Sellers
When pitching owner financing to sellers, focus on these benefits:
- Monthly revenue stream – Consistent income every month
- Higher purchase price – They can get more for their property
- Long-term income – Compound interest means they make significantly more over time (often 2-3x the purchase price over 30 years)
Exit Strategies for Investors
Keep the property and rent it out – Hold it long-term for cash flow
Assign the deal for a fee – Flip the owner financing contract to another investor
Wrap the financing – Owner finance it to someone else (similar to subject-to deals)
List on MLS – Market it as “owner financing available” to attract buyers
The Five Negotiation Points
When structuring owner financing deals, you have five moving parts to negotiate:
1. Purchase Price
Start with retail minus estimated repairs. This is your maximum allowable offer (MAO).
2. Down Payment
Aim for 10-20% down. Lower is better for you, but don’t insult the seller. A good rule of thumb: $10,000 or 10%, whichever is higher.
3. Monthly Payment
Calculate this based on the rental rate. You need margin between what you pay the seller and what the property rents for. Shoot for $300+ monthly cash flow.
4. Interest Rate
Here’s a strategy: don’t bring up interest rate unless the seller does. If they do ask, negotiate for the lowest rate possible (5% is better than 7%, saving you thousands over time).
5. Term and Balloon Payment
Minimum: 3 years gives you time to refinance or exit the deal
Preferred: 5-7 years provides more flexibility
Amortization: Structure payments over 30 years even if there’s a 3-year balloon. This keeps monthly payments low.
Real Example: $200K Property
ARV: $200,000 Estimated repairs: $20,000 Purchase price offer: $180,000 Down payment: $18,000 (10%) Rental rate: $1,200/month Monthly payment offer: $900/month
This gives you $300/month cash flow margin.
At 5% interest over 30 years:
- Monthly payment: $869
- Total paid after 30 years: $313,000
- Seller makes $133,000 in interest
At 7% interest over 30 years:
- Monthly payment: $1,077
- Total paid after 30 years: $388,000
- Seller makes $208,000 in interest
At 0% interest (if they don’t ask):
- You pay exactly $180,000 over time
- All payments go to principal
Information You Need
Before making an owner financing offer, gather:
- ARV (After Repair Value)
- Estimated repair costs
- Photos if possible
- Rental rate for the area
The rental rate is critical—it tells you if the deal makes sense based on your monthly payment obligation.
Negotiation Strategy
Focus on the three things sellers care about most:
- Purchase price – Top dollar for their property
- Down payment – Security and upfront cash
- Monthly payment – Income they can count on
Interest rate and term are secondary unless the seller brings them up. Read the seller’s situation:
- Are they working and need maximum monthly income? Focus on higher monthly payments.
- Are they retired with multiple properties and just want passive income? They may accept lower monthly payments for long-term interest gains.
Handling the Risk Objection
When sellers worry about the risk of financing to you, explain:
“If we fail to make payments, you take the property back. You keep our down payment and any monthly payments we’ve made. Unless we damaged the property, you’re not worse off—you can sell it again and keep the money we already paid you.”
This addresses their biggest concern while showing them the upside.
Balloon Payment Math
Example: $162,000 financed at 5% over 30 years with a 3-year balloon
- Monthly payment: $869
- After 36 payments, you’ve paid: $31,284
- Remaining balance (balloon payment): $151,680
The seller gets their down payment upfront, 36 monthly payments, and a balloon payment after three years. They make more than the purchase price thanks to interest.
Key Takeaways
Lower down payment and monthly payment = better for you
Don’t mention interest rate unless the seller does- just offer price, term, monthly pmt and down
Structure for 30-year amortization even with short balloon
Calculate based on rental rate to ensure cash flow
Sell sellers on long-term income potential
Owner financing opens up deal opportunities you’d miss with cash-only offers. Master these five negotiation points and you can structure deals that work for both you and the seller.
More Real Estate Investing Content:
- Check out my podcast, Cool Wholesaling and Land Deals – Real Talk on Real Estate Investing on YouTube, Spotify, and Apple Podcasts
- If you liked this post, you may like this one too: The power of owner financing- Vacant Land Deal Analysis
- Free resource: Grab my multi offer calculator—helps you generate wholesale, wholetail, subject-to, and owner financing offers fast
Until next time, keep the faith and keep taking action – it’s a numbers game!