There are many paths to helping buyers reach their goal of buying a home. The goal is to help them get to the finish line.
I often get questions regarding deal terms and other issues in the business. These two came straight from our mailbag:
- Is collecting part of a buyer’s tax refund as a down payment hurting them or their chance to save up to buy a home?
- What is your protocol when you’ve set up a date and time for a phone call with a seller and they’re a no-show for that appointment?
Let’s go through each.
Using Tax Refunds as Down Payments
When we are pre-qualifying buyers through our credit enhancement and tenant screening program, they are going over their debt-to-income ratio and ability to afford the home. If and when they green-light the buyer, then we’re going to meet to talk deal terms.
We call this our “buyer meeting.” At that meeting, we fill out a “buyer letter of intent” for the property, in addition to other forms. By the time they come in for a buyers’ meeting, we know they can afford it. So using their tax refund as a down payment should have zero to do with affordability.
Tax refunds are not a given. That may be why they aren’t factored into existing credit and income to gauge buyer qualifications for a mortgage. In fact, the reason we focus on the tax refund as a way to direct money toward a property is that it isn’t part of their regular monthly budget. Therefore, using it for this big purchase shouldn’t disrupt their lifestyle.
This should be agreed upon with your buyers in the original meetings. You want to collect roughly 50 to 60 percent of their return.
Some buyers will want us to take their entire expected refund, but that sparks further conversation about what they normally do with it. Do they have debt to pay down as part of their mortgage-ready plan? Asking allows you to get to know them a bit, which furthers your ability to make an intelligent decision about accepting them or not.
The second part of the question was whether we are hurting the buyer’s ability to save for a down payment. Well, remember that any savings for their down payment won’t end up in their bank account; it goes to you as the seller. You want them to put themselves in the best position and have the best opportunity to be approved for a mortgage at the end of your terms.
If they can’t get enough of a down payment over the course of the deal, that could be a problem in the end. If they need a jumbo loan, for example, they’d need to have 20 percent down already with most lenders. So if you know that and you were collecting only 7 percent in the meantime, you’re actually positioning them to fail.
Anything that can help them get that down payment—be it tax refunds, work bonuses, or any other unplanned windfall— should go toward paying more for the down payment. It’s one of the safest investments they can make.
The entire way we answered that question aligns with our goal with our buyers, which is to get them to the finish line. Too many investors (even publicly) will tell you it’s OK if the buyer cannot qualify—just put another one in there. Although that may be true, it doesn’t sit well with me or our family or business values, nor does it sit well morally and ethically.
Our systems are set up to get the highest percentage of tenant buyers cashed out. The only thing that should interrupt this is a life event or something outside our control.
Now, on the business side, sure, it infuses your own business with cash flow. It’s your profit and non-refundable. Make sure you’re getting at least 7 to 10 percent over the course of your terms if you can’t get it up front.
And on to the next question…
Dealing With Appointment No-Shows
Always give them the benefit of the doubt. Don’t take no-shows personally—especially the first time. Things happen. And of course, sometimes people just get busy and forget about appointments.
Someone jokingly asked me if this was like dating, where you should wait a few days before calling again. Instead, go ahead and leave them a simple message at the time of the missed meeting. It’s possible they’re just late getting to the phone and will be right back.
The message might sound something like this, “Hi there, hope you’re OK. I was just calling at the time that we had on the calendar. Give me a call back as I set aside some time just for you.”
You can wait a few days for the second call. By then, you’ll need a different protocol. Revisit their motivation to sell, which you should have in the notes from the property information sheet that should be a part of your records. The seller’s motivation is the most important piece of information, as it tells you what they are trying to accomplish and indicates how you can help them.
Your second message should include some of that wording. For example, let’s say they had to move to Florida. The second phone message may go like this, “I’m just following up to see if you’re still moving to Florida and need XYZ done.”
Remember, you’re not selling or convincing. You’re solving whatever they need.
If you still get no answer, add it to a “let sit” file. You’ve done your part, and they may just have gone quiet for some reason you can’t resolve.
At this point, you have to concentrate on other leads. Revisit that “let sit” file on weekends or some designated day. Alternatively, if the sellers’ motivation had a likely end date, you can set a reminder for just before that time.
After that, you can rip up those leads and keep your files tidy and up to date. It’s not you, it’s them.
Consider yourself a professional spaghetti strainer—always seeking sellers that have issues, challenges, concerns that you can solve or help with. Those are not always negative in nature by the way.
Many of our sellers are debt-free and just have time, geographic, or price issues that may be better suited for terms deals. You can seek those types of sellers out considering approximately a third of properties in the U.S. are debt-free.
Would you have handled either scenario differently? Do you have other questions for me?