Never Give Up On a Deal!

Everyone thought this deal was doomed to fail (even us), but we didn’t give up.

We’ve all come across deals that seem totally dead. And in some cases, we find ourselves in them. Your first instinct is usually to give up, but one of the most important lessons you can learn in real estate is to stick with it—even when a deal seems doomed to fail, you can’t give up.

In this case, we found a property that had been on the market for over a year. We took it on as a challenge, but there were still points where we thought we were going to fail.

Instead of giving up, we stuck with it and ended up with a decent Payday at the end. Let’s check out the details and see why this is such a valuable lesson.

The deal we almost threw away

The property we’re discussing had been on the market with a realtor for over a year. When we got involved, the seller was still adamant that he wanted to work with a realtor, so we let him. That’s not something we normally do, but we were working in a new territory and we weren’t so sure about this deal—so we told him he could continue to list with a realtor. Especially when you’re new, there’s nothing wrong with doing this to get the deal flow going. Plus, the seller has nothing to lose and is now able to have exposure to the conventional and TERMS market.

After we got involved, it still took another six months to get a deal going on this property. Over those six months, we made some adjustments with the property and lowered the monthly payment. Eventually, as summer rolled around, we found a great couple looking to purchase in the area.

This was a lease-purchase agreement with the seller, so we had three paydays in total. The numbers on this deal weren’t nearly as good as our average, but the important thing is that we got it done. If we had given up, we would’ve lost a whole lot of money (and time).

The numbers

We purchased this house for $319,900, with a 36-month term and a monthly payment of $1,975. That monthly payment covered the PITI (principal, interest, taxes, and insurance), and it was pretty high because of the high taxes in the area.

The monthly payment was one of the main things preventing this house from getting sold, so we lowered it as much as we could. You’ll see what I mean when I get into the paydays…

The first payday was the down payment. In this deal, we got a down payment of $16,000. As you may know, these down payments rarely happen all at once—in this case, we got $9,000 up-front and the remaining $7,000 over the next 24 months.

The second payday was the monthly spread. We were paying $1,975 per month, and because that payment was so high, we had very little wiggle room in what we charged the tenant-buyer. We ended up charging $2,000 per month in total, but it was marketed as $1,600. In reality, the tenant-buyers were paying $1,600 plus taxes—which ended up being $400 per month.

This is a strategy we use purely for marketing and all our buyers are educated in our videos that they have to behave and pay for things like a buyer so taxes are their responsibility. If it’s already built into our PITI we can always add our marketed price back on to create our spread.

So, in the end, we made out with $25 per month. Over the course of 36 months, that’s $900 total. (Remember when I said we lowered it as much as we could?)

The third and final payday was when we sold the house to the tenant-buyers at the end of the 36-month term. We ended up selling it for $344,900. When you subtract the purchase price of $319,900 and the down payment of $16,000, that’s $9,000 remaining in profit.

But wait! There’s one more aspect to the third payday: the principal paydown. $476 of that monthly payment went towards the principal, which comes out to $17,136 over the course of the term. Add that to the $9,000 and you get a total of $26,136 for payday #3.

Let’s add up all three paydays to see what the total on this property came to. And remember, this is a deal we almost threw away! It took almost two years for the seller to get a buyer into this house.

Payday 1 was the $16,000 down payment, Payday 2 was the tiny $900 monthly spread, and Payday 3 was the sale, where we pulled in $26,136. Add those up and you get a grand total of $43,036.

So we made $43K on a house that everyone thought was doomed to fail. At times, even we thought it wasn’t going to work out, but we never gave up.

Two important lessons from this deal

So, what’s the lesson here? Well, there are two.

The first and most obvious lesson is that you shouldn’t give up on a home that you think is going to fail if there are options remaining. Even though we had to wait over six months and we didn’t make a great payday, we still made money on this property. If we had given up, it would’ve been a total waste of time and loss of money on our part. These are the deals you ALWAYS make contingent upon finding your buyer before starting with your seller!

The second lesson is that when you’re working with purchase-lease agreements or sandwich deals, the number one concern for tenant buyers is the monthly payment! If you’re ever struggling to get a tenant-buyer into a home, you have to lower the monthly payment.

This is something we do all the time. If we can’t find someone for a home, we start lowering the monthly payment—and we’re not afraid to lower it to a point where we barely make any profit on the monthly spread. That’s exactly what we did in this case. We were making $25 per month on the monthly spread! We were losing money on it when you consider the value of our time alone.

But that doesn’t matter, because in the end, the monthly spread accounted for about 2% of the total profit on this deal. We still made $42,136 on the other two paydays alone. The important thing is, once again, that we got the house sold. Happy seller, happy buyer, happy investor.

As far as we’re concerned, we’ll take a $43,000 payday over a loss any day.

Have you ever had a deal that was doomed to fail? How did it turn out for you? Were you able to stick it out and make something of it, or did you give up?

Remember, we are not attorneys or accountants—you should seek out proper professionals in your area.