Posted 20 days ago

Time & Effort = Big Payoffs

If you put in the time and effort with terms deals, you'll be paid accordingly—but not always three times!

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The deal we're looking at today is a first deal from one of our Associates, and it took several months to get a buyer in the home. The property was taken under contract in March, and the buyer moved in on August 1st.

That's actually not too crazy—we've seen deals take up to a year to fill—but the key lesson here is that our Associate was putting in effort the entire time. He kept working on finding a tenant buyer, and he eventually did. If he had quit, all of his time up to that point would have been wasted and he would have missed out on a large Payday.

Those five months were nothing in the scheme of things. In the end, the time and effort our Associate put into this deal was well worth it—so let's get into the numbers and see why.

The A/O Deal

The source of this deal was a FSBO (For Sale By Owner) listing that our Associate reached out to via Slybroadcast. This is an automated system we use to call on expired and FSBO listings, to see if they'd be interested in structuring a terms deal. If they are, they just call us back and we have a discussion.

In this case, the seller was interested in structuring a terms deal, but they wanted to have a bit more control and they wanted to recoup as much of their money as possible. Our Associate understood this and offered to structure an A/O deal, which stands for "Assign Out."

An A/O Deal functions just like a sandwich lease purchase, but with one major exception. In a sandwich lease purchase, we would agree to a purchase price with the seller and then take on the property, find a tenant buyer, and handle the deal throughout the length of the term until the tenant buyer is ready to purchase the home.

That means we profit on Paydays #1 (the down payment), #2 (the monthly spread), and #3 (the sale of the home, plus the principal paydown throughout the term).

With an A/O deal, our only responsibility is to find a tenant buyer. Once we secure a tenant buyer for the seller, we take a portion or all of Payday #1 and the seller takes over the rest of the deal. That means they get the profit we would normally get from Paydays #2 and #3, but they also take on all the risk and liability, as well as the time investment to ensure it all goes smoothly.

These deals are great for us and sellers. For us, it's a quick and easy Payday with no risk, no liability, and no headaches down the road. It's also quite easy to explain and enables a seller to move forward quickly. For the seller, they get to recoup much more of their money and make some profit for a bit more time invested.

And like any terms deal, there are still ways to pivot once the seller takes on a tenant buyer. Sometimes, we'll close out an A/O deal with a seller and then get a phone call from them a year later. Maybe their tenant buyer just left and now they need a new one. Or maybe they just don't want to deal with managing the deal anymore.

Either way, there's always the option to pivot and transition an A/O deal into a sandwich lease purchase down the line. This is something we tell our sellers on every A/O deal we structure, so they know they have a "safety net" if they find themselves in over their heads at any point.

Payday #1™

As mentioned above, there is only one Payday on this deal because it was an A/O.

Our Associate agreed to a minimum purchase price with the seller of $569,900. That’s how we structure it with an A/O, and then we bring it to the market to see what we can get above and beyond that. He structured the deal with a 24-month term and determined the minimum monthly payment for the tenant buyer. This is all just a formality, because we need to have those numbers in order to find a tenant buyer and ensure they'll qualify within 24 months. Once the seller takes over the deal via the proper assignment and other paperwork, they work directly with the buyer and we are released.

We then settled on a sale price of $599,900. We do this by running some calculations based on the current market. We generally find two numbers when we do this; the price if someone were to buy it conventionally today, and the price if someone were to buy it using our rent to own program.

Those two numbers are different because we're talking about two different pools of people. We're offering a valuable opportunity to someone who would otherwise be unable to buy a home and are locking the price in for a few years typically, so the numbers are adjusted accordingly.

This one did take a while to secure a tenant buyer—but after about five months, our Associate found one. There were, however, a few small issues to sort out. Our Associate was looking for $51,000 for Payday #1, but the buyer was only able to come to the table with around $24,000. To make up the difference, our Associate structured a payment schedule with the tenant buyer to reach the final amount over time.

The initial deposit would consist of $20,000. Then, over the next 18 months, the tenant buyer would make another payment of $10,000 in December, $6,000 in June, and another $15,000 the following December.

That comes out to $51,000!

Splitting the deposit

You might be thinking: "You said he only potentially gets a portion of Payday #1. So what did he actually make?"

Well, our Associate walked away from this deal with $26,196.36. He secured $22,500 from the deposit, plus the initial binder deposit and first month's rent. It is standard for us to collect the first months’ rent on any of our deals (A/O, Sandwich Lease, Subject to, or Owner Financing) and not have our payments to the seller or mortgage holder start until at least one month. Our Associate did have to put in some extra effort on this one, but it was still only a few solid days of work out of that five month period.

Thanks to his persistence and effort, he was able to walk away from this deal with $26,000 in his pocket. Plus, there's always a possibility of the seller calling him up and asking to transfer it back to him (converting to a sandwich lease or subject to). That would just result in more money in his pocket!

What's the longest you've held on to a deal for in order to secure a buyer, and what kind of deal was it? I'd love to hear how long it took and how you made out in the end. Leave a comment below!