Magazine 04 - What Is Seller Financing

So what is seller financing? Seller financing is creative financing strategy. You say when maybe the deal doesn't make sense based off of your banks lending criiteria. Or say there is a large value add component that needs to be done. Maybe the property is not producing any income right now, or it's producing negative income. Usually banks, when they're lending on commercial properties, they're going to be lending based off of what's called a Debt Service Coverage Ratio.

The Debt Service Coverage Ratio is a ratio of your Net Operating Income to your Debt Service or your interest payments yearly. Now, most banks want to see that you're making about 1.25 times the Debt Service in NOI. So what does that mean? Say that when I buy a property, the total debts that I have to pay in one given year is a million dollars in interest and principal. And a 1.25 DSCR, Debt Service Coverage Ratio. The bank is going to want to see that I'm bringing in after all expenses, at least a $1,250,000, so that you have a $1,250,000 NOI divided by a $1M of Debt Service. That gives you your 1.25 times that service coverage ratio.

Now, if you can't hit that number, because obviously the property is negative cash flow, and you're not losing any income because it was poorly managed or the owner was negligent. Then what makes sense is to actually have the owner be your bank for a short period of time or a long period of time. So what we usually like to do is say, Hey, seller, you know, the bank's not going to lend on your property in the condition that that's at. Can you carry the paper? Can you be my bank for say, 18 months or 24 months while I turn this facility around? Once I get it up to the income that would make sense for the bank to lend on it, then that bank will come in and they will refinance you out of the property.

And it's just like a bank transaction. The seller will get a mortgage. They'll get a note. Usually we'll have the seller's attorney prepare it so that they know they're being protected. And that is usually a win-win situation. Allows a seller to sell a property. That's usually not lendable and allows me as a buyer to buy a value add project that usually a bank wouldn't lend on today. My name is Fernando Angelucci. And I'm The Storage Stud.

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Fernando O. Angelucci is Founder and President of Titan Wealth Group. He also leads the firm’s finance and acquisitions departments. Fernando Angelucci and Steven Wear founded Titan Wealth Group in 2015, and under his leadership, the firm’s revenue has grown over 100% year over year. Today,
Find out more at
https://www.TheStorageStud.com
http://titanwealthgroup.com/
Titan Wealth Group operates nationwide sourcing off market investment properties for Titan Wealth Group’s acquisition as well as servicing a network of thousands of active real estate investors world wide. Prior to founding Titan Wealth Group, Fernando worked for Dow Chemical, a Fortune 50 company, rolling out a flagship product estimated to gross $1B in global revenues.
With an engineering background, Fernando is able to approach real estate investing with a keen analytical mindset that allows Titan Wealth Group to identify opportunities and project accurate pictures of future performance.
Fernando graduated from the University of Illinois at Urbana-Champaign with a B.A. degree in Technical Systems Management.
Titan Wealth Group was founded in 2015 with the vision of gathering individual investors that have the means to invest but lack either the time to find high-yield investment opportunities or the access to these off-market deals. All too often, founders Fernando Angelucci & Steven Wear came across investors who had deployed their capital only to regret the lack of consistency or degree of returns their investments were producing. In response, Titan Wealth Group provides access to highly-vetted real estate secured investments and off-market acquisition opportunities primarily in the Greater Chicago MSA. Today, Titan Wealth Group not only assists individual investors but has grown to support the acquisition goals and capital deployment of investment groups, private equity firms, and real estate investment trusts (REITs).
As a facilitator of wealth growth, Titan Wealth Group believes that success is not limited to the sum of our efforts and is infinite with what can be accomplished through partnership.
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