Key Takeaways
- Trade seller's priority for your priority in multi-variable negotiation.
- Sandwich lease options profit from monthly, fee, and price spreads.
- Only 20-30% of tenant-buyers exercise.
- Five-step framework ensures structures used only when advantageous.
Seller financing and lease option underwriting focuses on structuring win-win terms.
Seller Financing Negotiation
Buyers prefer lower down, lower rate, longer amortization. Sellers prefer higher down, higher rate, shorter balloon. Strategy: offer what seller wants most in exchange for what you need. Example: full asking price with lower rate and longer amortization.
Lease Option Underwriting
As sandwich lease option: monthly spread ($1,700 tenant − $1,400 seller = $300/mo), option fee spread ($10K − $5K = $5K), exercise price spread ($220K − $200K = $20K). Only 20-30% of tenant-buyers exercise.
Decision Framework
Five steps: Does seller situation suggest creative? Which structure fits? Can it meet your returns while solving seller problem? Is it legal in your state? Does risk-adjusted return exceed conventional?
Go / No-Go Decision Framework
Go Indicators
- ✓Trade seller's priority for your priority in multi-variable negotiation.
- ✓Sandwich lease options profit from monthly, fee, and price spreads.
No-Go Indicators
- ✗Focusing only on price in seller financing negotiations instead of using multiple variables: Missed opportunities to create value through rate, term, and amortization trade-offs
- ✗Overestimating lease option exercise rates when projecting returns: Projected returns based on exercise are overly optimistic when only 20-30% actually exercise
Sources
Common Mistakes to Avoid
Focusing only on price in seller financing negotiations instead of using multiple variables
Consequence: Missed opportunities to create value through rate, term, and amortization trade-offs
Correction: Always negotiate at least 3-4 variables simultaneously. Offer the seller's priority in exchange for your priority.
Overestimating lease option exercise rates when projecting returns
Consequence: Projected returns based on exercise are overly optimistic when only 20-30% actually exercise
Correction: Model both exercise and non-exercise scenarios. The deal should be profitable even if the tenant does not exercise.
Test Your Knowledge
1.What is the core negotiation strategy for seller financing?
2.In a sandwich lease option, what are the three profit sources?
3.What is the first step in the five-step creative financing decision framework?