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