You’ve probably heard that follow-up is crucial to finding real estate deals, but do you have a solid follow-up system? Here’s the truth: If you’re not following up, you’re definitely missing out on profitable real estate deals. Think about it—all for sale by owners (FSBO) think they can sell on their own or they wouldn’t be listing their property for sale. Your initial call will then require follow-up calls. Of course, follow-up comes into play with all sources, but especially with FSBO.
One of our partners in Texas began his real estate journey in December 2017 and was met with a steep learning curve. Luckily, he stuck with it. He didn’t get his first contract until August 2018, and that came as a result of following up on an expired listing (a home previously listed with a real estate agent that did not sell). Expireds are one of our favorite sources because you’ll find them in all markets and all market conditions.
When Following Up Lands the Deal
He followed up with the seller in July, when she was considering re-listing the property. She had a $3,200 mortgage payment so she was motivated to sell and get out from under that large payment. She wasn’t able to find any buyers on her own, so she turned back to the investor. In less than two months, he was able to find a buyer for her!
This investor decided to use an assign out (AO)—whereby you procure the buyer and assign the buyer back to the seller. In this case, the decision was made because lease purchase, when you stay in the middle of the tenant-buyer and seller (referred to as a sandwich lease), is not allowed in Texas, among other factors.
In Texas, there are other buying strategies, such as purchasing the property on owner financing or buying the property subject to the existing loans. He eliminated those options because the monthly payment was too high to create a spread. Actually, the seller had to subsidize a portion of the mortgage in order to place a serious tenant-buyer into the property.
The seller had originally listed the home at $375,000, and after some discussions with them, we decided to set the option to purchase price at $408,000. We then procured our buyer, who put 3% down up front with payments adding up to $10,000 over the next six months.
We set the rent at $2,550 per month for 30 months with hopes for the buyer to be mortgage-ready and in a place to close in 24 months. It’s important to note here that we always pre-screen the buyer to make sure they can eventually be mortgage-ready. You don’t want to install buyers without this critical step, as you could be setting them up for failure. I know a lot of mentors don’t teach it this way, but morally and ethically, we have strict standards in this area. This was less than what the seller was paying on the mortgage, but it was worth it to the seller to get the house sold, so they subsidize the monthly payment until cashed out. This does happen from time to time.
In the end, there was a spread of $15,000 between the purchase price and the sale price, and 25% of this was given to the seller. On most AO deals, we do give the seller anywhere from 25%-50% of what we collect. This may seem like a smaller payday, but it’s one that would not have happened at all without creativity and commitment to follow up. In the end, we were able to create a win-win-win situation between the partner, the seller, and the new buyer. Everyone walked away from the deal happy, which is always important to us.
Even if you live in Texas where they restrict sandwich leases, you can find ways to generate income from real estate. You can still purchase owner financing or subject to, and you can always do an AO, as we’ve reviewed. Regardless of how you’re buying and selling, having a solid follow-up system that you systematically implement is crucial to any real estate business. The ability to find a motivated seller and exercise some creativity gave this investor his very first real estate deal and the confidence to proceed with many more in the future.
Has follow-up proved key to finding deals for you?