In this episode of “Best Deal Ever,” Matt Oviat explains how, with the help of some creative terms, he has been able to successfully navigate the pricey Utah real estate market.
Having been in business since 2002, Matt has done a little bit of everything. Currently, roughly 60% of his business is fix-and-sell properties, while 40% is wholesale. However, being a self-proclaimed “buy and hold” kind of guy, over the past 18 years he has held on to whopping 150 properties.
While Matt has had several deals he could classify as his “best deal ever,” for this episode he is focusing on one that I find really creative. Matt found an off-market duplex through one of his marketing channels. His acquisition guy went to speak with the homeowner to discuss her needs and different solutions.
He came to find out she owned two side-by-side duplexes, which she owned free and clear, and was open to seller financing. Matt paid the asking price of $250,000 per building. At the time the seller was renting three of the four units at around $650 to $725 per month. If you’re adding those up in your head, those are not great numbers.
Here’s where Matt got creative. Explaining how he would keep the seller as the lien holder and collateralized on each property, he asked her what she wanted out of this deal. The seller, being in a good situation financially, agreed to zero money down with a 15-year balloon interest rate. In years one through five, the interest rate was 2% amortized over 30 years; years six to 10 would be at 4%, year 10 and on at 5.75%.
Structuring the deal like this got the seller a blended return, like she wanted, and made the deal palatable for Matt. He took a deal that had no cash flow and created $400 per month in cash flow by negotiating the interest rate down. Matt is holding the properties and anticipating they will continue to appreciate over the next 10 to 20 years as rent increases.
He and his team added some interesting terms to this deal that I don’t often see. The note is assumable; in case he needs to sell, the loan stays in place, making the note very marketable. It has the right of first refusal, giving Matt’s team the first chance to buy the note down the road if available.
The deal has a catastrophe clause, a 90-day moratorium on payments in case anything happens to the property that insurance won’t cover. Lastly, it has a substitution of collateral. Matt is able to sell the property and move the seller’s terms to a similar property, and in return, the seller receives 30% equity in the new substituted property.
Often when deals come in you are negotiating the cheapest cash price possible. but Matt demonstrates that if you are able to manipulate the terms and hold on to properties, you build wealth.
He has found that if you are able to make the seller comfortable with being the note holder and find creative financing structures, it improves your cash flow. Matt was able to creatively turn something that most investors might shy away from into an amazing deal.
How has an unconventional financing structure helped you land a great deal?
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