Posted 5 months ago

Too Many Curveballs to Count!

This deal was a treacherous one, full of pivots and curveballs—but it still worked out well in the end.

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Most of our deals involve some type of curveball or pivot, but every now and then we come across a deal that is chock-full of them. These make for interesting learning lessons for anyone new to the terms business, as they can show you how to pivot in extreme situations (where you need to find a way forward) and lesser situations where you can alter deals to your advantage.

In this case, we’re looking at a deal that appeared to be completely stuck—but thanks to some ingenuity from our Associates, they were able to move it along and get a nice Payday in the end. This was a deal from our High 6 Associates, a couple in Ohio.

A court-ordered sale

This house was an expired listing from a court order. The court order was the result of a divorce, as the couple were forced to sell the home and split the money.

The only problem? The ex-couple had it on the market with a realtor for two years without any action! The ex-husband, in particular, was very frustrated about this, so our Associates approached him about structuring a terms deal.

Luckily, he had already done a few terms deals and was excited about the opportunity. For him, it was a no-brainer—he loved that there were no fees involved and he could lock in the equity and split it with his ex-wife.

Our Associates started talking with the ex-husband, but it became clear that the ex-wife was not on board with a terms deal. There was some negotiating, but the biggest problem was that she would not sign the quitclaim deed over to the ex-husband which was required so they could market the property. She wanted off but didn’t want off!

This was a curveball, but not one that couldn’t be dealt with.

Our Associates took their chances and decided to market the property anyway, signing the contract with the ex-husband so they could start the marketing process and potentially find a buyer. If they did find a buyer, it would be a big incentive for the ex-wife to sign the papers and move forward.

Within forty days, they did find a buyer—and a great one! It took another seven to ten days to explain to the ex-wife how great the buyers were and why they should go ahead with this deal and how that process would roll out.

She was still hesitant, but she went out on her own to do some research on terms deals. She found the National Property Team website where it listed our Associates, along with all of the deals they had done and testimonials. Seeing that there was a group of over 80+ investors that had been doing terms deals for over 30+ years was enough to push her over the edge and proceed with the deal.

The Numbers and Paydays™

Now that we understand the nuances behind securing this deal, let’s take a look at the numbers.

The house was “purchased” for $375,000. But really, the divorced couple owed $323,921 on the home and had $51,079 in equity. So our Associates are basically going to the sellers and saying, “At the end of the term, we’re going to give you your $51,079 and pay off your loan.” That loan, of course, ends up being far less at the end of the term—which is where you make most of your money in terms deals as far as Payday #3™.

The house was put on the market for just under $400,000 and, as mentioned above, a buyer was secured pretty quickly. They agreed upon a term of 48 months.

Payday #1™ is the down payment, which in this case was $31,000. But we also structure our deals so that we secure the first month’s rent, which adds another $2,299 to this Payday for a total of $33,299.

Payday #2™ is the monthly spread. The mortgage payment (PITI) was $2,388 and the monthly payment from the buyers was $2,748. Now, you might be wondering why this amount is different from the amount listed in Payday #1 for the first month’s rent…

That’s because this payment includes taxes. For marketing reasons, we often lower the price of the rent to not include taxes when we’re listing the home. But we always pass on taxes to the tenant buyer because we are setting them up to be a homeowner! They’re going to have to pay those taxes and that becomes part of their lease payment.

In this case, our Associates didn’t include the taxes on that first month’s rent (although they could have if they wanted to). Regardless, the monthly spread for Payday #2 comes out to $360 per month, which is $17,280 after 48 months.

Payday #3™ is the surplus on the final sale of the home, plus all the principal paydown. The house was sold for $399,000, which is a markup of $24,900. And the principal paydown was $563 per month, which comes out to $25,728 over 48 months! When you remove the initial down payment, that’s $19,628 in total for Payday #3.

Add up all of those Paydays, and the total comes out to $70,207.

One more curveball!

You didn’t think this deal would end that easily, did you?

There was one final curveball here with regards to the closing. This property was a few hours away from our Associates, which is normally not a problem. But during the closing, the ex-husband was unable to leave work and could not physically come to sign the documents.

No problem—they opted to do it virtually! The buyers were willing to use their own notary, so the papers were sent around to everyone and they all signed virtually. Our Associates made it very clear to the buyers that she needed to overnight the documents to them in order to close the deal before the end of the day on Friday.

But guess what happened? She sent them with USPS Priority instead of overnight with Fedex or UPS. This caused a significant delay. The deal did get closed out, but almost a week later than anticipated.

So, the moral of the story? If you ever need to send documents, be sure to specify exactly which carrier and method you’d like your sellers or buyers to use! It could make a difference in the final closing as far as timing and you receiving your Payday #1™ in a timely manner.

How many pivots and curveballs did you count? Leave your answer in the comments below!