Buying & Selling Houses

Tenant in Place? Here’s How to Turn It Into a Selling Point

Expertise: Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Personal Development
43 Articles Written
negotiation, deal, real estate, compromise

People are a part of every deal, but in a recent case, we added an inherited renter—and their rent—to the package. We were actually happy to keep them at this multi-structure property, as we used it to sweeten the deal for the buyer.

The Property: LakeView

The Connecticut property, which we’ll call LakeView, could be a main residence or a vacation home—with a stellar view of a lake, hence the name. The seller was using it as a second vacation home, which was across the country from his main residence.

The home included a legal in-law suite downstairs. Also on the property was a separate garage with a one-bedroom suite above it, which a family friend was renting while keeping an eye on the rest of the property.

Related: How We Found an Extra $400K on Two Properties

The Deal Summary: LakeView

The seller had inherited everything as part of a family trust, but the distance and a life event had motivated him to sell it. This deal stands out from our average terms deals because it was top-loaded with principal and monthly payments.

The way we structured this with our buyer, we got a lot of our proposed profit from three paydays up front. That does happen on deals, but I’d say only roughly 10 percent of the time due to a high down payment (payday No. 1) up front or over time.

Here were the specifics for LakeView: 

Purchase Price: $399,000
Monthly: $1,000 principal-only payments x 48 months
Sold: $429,900 (monthly lease = $1,750)
Payday #1: $80,000 ($20,000 up front and three more $20,000 payments every 6 months for first two years)
Payday #2: $26,000 ($550 monthly spread (rent minus the $1K monthly to seller and insurance payments)
Payday #3: -$2,000 ($30,000 markup + $48K in principal paydown – $80K paid)
Total: $104,000 ($80K + $26K – $2K)

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The LakeView property was in a high-tax area, but to be clear, we pass taxes on to our buyers so their total monthly is approximately $2,750 with $1,000 of that being taxes.

Related: Lease-Purchase Agreements: What If There’s an Existing Tenant?

The Icing on Top: An Inherited Renter

Remember that second structure? It turns out the seller had a family friend living in the unit above the garage, who was paying roughly $700 a month in rent.

We met with him. He was a great guy and interested in staying in the property.

real estate investors looking at demographic data

We took this news to the buyer, who would ultimately inherit that tenant. We explained they could take that rent only after their net $20,000 came in, so at that point, we’d know they had $40,000 in the deal.

It added some incentive for them to stay on time with rents (part of criteria to get to the point of taking the deposit), and it generated $700 more cash flow to us monthly (not figuring in the $104,000 above) until the time hit for them to take over.

That tenant represents a revenue stream, another payday really, so we dangled the carrot to the buyers by agreeing to hand over his rent once they made the second down payment of $20,000. This would occur six months after the deal.

During those six months, we did in fact collect $700 a month from that tenant, which totaled $4,200 and pushed our grand total in profits on the LakeView property to $109,000! Yes, that’s a six-figure profit, even after the negative payday No. 3—an impressive deal.

In the aftermath, we talked about the sale price of $429K and the terms in our review of the sale. We felt like we could have tested the market more. However, getting the deal done in three weeks allowed for some peace of mind and the ability to move on to the next deal.

Imagine what a few six-figure profit deals could do for you in a few years! It’s not unheard of when you treat real estate as a business and establish effective systems, but it does require working hard and smart.

Do you have any questions about the above deal? Would you ever sell on terms? Why or why not? 

Leave a comment below!

 

Chris Prefontaine is the best-selling author of Real Estate On Your Terms. A real estate investor with over 27 years experience in the field, Chris is the founder of Smart Real Estate Coach and host of the Smart Real Estate Coach Podcast. He lives in Newport, Rhode Island with his wife Kim and their family. Chris is a big advocate of constant education. He and his family mentor, coach, consult, and actually partner with students around the country, teaching them to do exactly what their company does. Between their existing associates nationwide and their own deals, Chris and his family are still acquiring 5-10 properties every month and control between $20 to $30 million dollars worth of real estate deals, all done on terms without using their own cash, credit, or signing for loans.