How to Structure an offer using 3-offers

Question

Greetings,

Curious how to Structure the "3-offer" .... Offer?

Can someone supply a detailed case where they offered 3 scenarios from which the Seller chose?  Looking for some examples so I can adapt any future offers package accordingly.

If you're curious, in the case of my current prospect, it's worth 125k, needs 35k+ rehabbing (haven't site-walked nor inspected), there's an option to build on the property with Seller advising that he's talked with other investors in the past and would rather build and somehow share in the profit.

Thank you ahead of time,

Ricardo

:)

Darrell Shepherd · Answer

First off, you need to know their motivation and loan info, etc. when structuring creative deals, but basically it goes like this:

I can pay you $65,000 cash now.

I can pay you $5,000 cash now, and $65,000 more in 6 months.

I can pay you $2,000 now and $75,000 in monthly payments of $500.

Which works best for you?

That's WAY over simplified, there are a million ways to structure this and a lot of it is dependent on what their needs are and which one you want them to pick, but that's the general idea.  I used to buy a lot of houses sub2 and would make multiple offers a lot.  I wanted to keep the loan in place so would make my cash price crazy low to make the sub2 deal look more appealing.  You've got to keep them VERY simple, though.  You can't go in and try to teach them a course on Real Estate or financing during your offer or you'll get a "let me think about it" every time.

In the case of yours lets assume there's a loan on it for $40k.  You're strike price is $50k ($125k x .70 is $87,500 less $35k).  So you're offer is $10k, then take over the payments on his $40k and promise to pay it off within 12 months.  "It doesn't make much sense to pay points on a new loan just for the months I'm going to be fixing the property, so lets just leave that loan in place"  If its cheap money you can cheat on the .70 because your fixed costs will be lower.  "I can pay you more if we leave that loan in place, any reason it needs to be paid off before February?" kinda thing.  I'm pretty blatant about what I'm going to do when I'm talking to sellers.  "OK, well I'll give you $5,000 so you know I'm serious, then I'm going to spend my time and my $35k fixing this house, then I'm going to sell it, that should take 3-6 months, but lets write it up for 12 just in case somebody's loan doesn't close on time or something.  When it sells the closing attorney will give you another $10,000 and pay off your loan, does that sound fair?"

If its paid for you ask "Do you need all of this money for anything specific?"  this sets up owner financing WAY better than "will you owner finance it?"  Most sellers with paid for houses don't need the money, but some do.  Your offer needs to reflect their needs more than yours.

I'd give you more advice on this one if I had more details (loan amount, seller's needs, your resources for cash).  I will say that I wouldn't get into any kind of profit sharing deal that wasn't structured with interest or delayed payment of something specific.  You do NOT want someone else telling you how much you can sell your house for, what color to paint things, or how much to pay your people.  Not to mention going through your Home Depot receipts to make sure you didn't "accidentally" bill a fan for your bedroom to this job.

Matthew Reed · Answer

This was discussed in a podcast, but I forget which one.