Should You Take on a Property That’s Been Listed for THREE Years?

This might sound like a death sentence to most realtors. But not if you’re an investor in the terms business!

What if you ran across a house that has been on the market for THREE years? Should you go in on it?

Most people would say no. But in the terms business, you’re not catering to the same market as a realtor. So in many cases, we’re able to sell houses that otherwise wouldn’t sell—and we can make a solid Payday when we do it.

In this case, one of our Associates did take on a house that had been on the market for three years. And guess what? He sold it in 70 days.

Let’s take a look at what happened.

From 3 years to 70 days

This particular home was owned by a military family who had been forced to relocate. They had gone through a lot of hassle and had plenty of headaches with this property, including two evictions with two different attorneys, maintenance issues, repairs, and renovations.

The house had been on the market for three years and they were starting to wonder if it would ever sell.

This property was a FSBO (for sale by owner) that our Associate acquired through a postcard. Now, it’s important to note that when we send out mailers it’s very different from what other real estate professionals do.

It’s not uncommon for a wholesaler to spend thousands per month on mailers. I was just talking to someone who spends $5,000 per month for all of his mailing—and that’s even on the lower end.

We don’t spend more than a few hundred dollars per month on mailers—if we even do them at all! In this case, our Associate spends around $150 per month on mailers, sending out about 300 postcards in total—and this is his 12th deal, so it’s clearly working for him. Other Associates spend zero on mailings as they get more than enough leads from the other sources we teach (primarily Expireds, FSBO and FRBO).

Getting back to the deal, this one was set up as a sandwich lease with a 36-month term. This is a fairly short term, but it can still provide three great Paydays if you manage it correctly.

The owner of the property originally had it on the market for $340,000… But over the course of three years, they had brought it down to $285,000! Our Associate ended up purchasing it for $300,000.

Now, you’re probably wondering why he purchased it for $15,000 more than their asking price. This is something we often do when sellers are hesitant about rent-to-own deals. It gives them a nice incentive and shows them that we are serious about these deals. And since we’re getting so much of our profit from the principal paydown, it doesn’t put a huge dent in the final Payday.

It’s just one more reason why terms deals can be beneficial for both the seller, the buyer, and the person structuring the deal.

The other part to remember is that the seller isn’t exactly getting $300K in cash. When we structure these sandwich lease deals, what we’re really doing is promising to pay off their mortgage and pay them the difference. In this case, the seller had $248,000 in underlying debt on the house. So our guarantee was that we’d pay off that debt and give them $52,000 in cash.

One thing we also make clear from the beginning is that we’re receiving the principal paydown when we’re making payments on the house. This just makes logical sense. When the seller makes payments, they get the principal paydown. But when we make payments, we get the principal paydown. This also means that when we’re paying off the mortgage in this deal, we’re paying a lot less than $248,000—which is where much of the profit comes from.

Explaining these two concepts right from the get-go and making sure everyone is 100% clear is absolutely necessary for any terms deals. That way, you don’t run into a roadblock or misunderstanding a month down the line.

And there is one final lesson with this deal. As mentioned above, the seller had many problems with tenants, evictions, and attorneys over the course of the three years where it was on the market. When it came time for us to find a buyer, we were getting calls from the owner telling us to make sure we didn’t rent it to this or that person because they had trouble with them in the past.

Here’s what we told the seller: We’re not looking for renters! We’re looking for buyers.

People run into problems with terms deals because they end up dealing with renters, not buyers. They don’t put down payments in place, they don’t screen their buyers, and they have no way of verifying that their tenant will actually be able to buy the home at the end of the term.

Our process takes care of all of those problems by weeding out people who are just looking to rent and focusing on people who will be mortgage-ready at the end of the term. That’s why we’re able to be so successful with these deals—because we know that the buyer is an actual buyer, not a renter.

The Paydays

Let’s take a look at the numbers on this property. We already mentioned that our Associate bought it for $300,000 with $248,000 in underlying debt. He was able to turn that around and sell it for $359,000 with a 36-month term.

Payday #1 is the down payment, which ended up being around 10% or $36,000 in total. Half of that ($18,000) was paid up front and the rest was paid over the next four months.

Payday #2 is the monthly spread. Normally, that means the difference between what you’re paying to the owner and what you’re getting in rent from the tenant buyer. In most cases, that’s a few hundred dollars per month.

In this case, however, there was no monthly spread. The tenant buyer was paying $2,000 per month and all of that was going to cover the full mortgage payment which included PITI (principal, interest, taxes and insurance). To people who read our articles frequently and keep up with our deals, this might come as a surprise. Sometimes we have small monthly spreads, but rarely is there no monthly spread whatsoever.

But don’t worry! We always tell our Associates and our audience that the real money comes from the principal paydown. The monthly spread is a great bonus but it’s not the end all be all—and this is a perfect example. The principal paydown shows up in Payday #3.

Payday #3 made up the bulk of this deal, coming in at right around $43,000 in total. And that number is calculated by taking the sale price of the house ($359,000) and subtracting the purchase price ($300,000) as well as the down payment ($36,000). That leaves you with $23,000 in profit from the sale.

But there’s still the principal paydown! In this case, out of that $2,000 monthly rent, $555 of it was going to paying down the principal. As mentioned above, we get all that principal paydown—so when you multiply it over 36 months, that’s another $20,000 in our Associate’s pocket.

All in all, that’s a total of $43,000 for Payday #3 and a total of $79,000 for the entire deal.

(If you’re paying very close attention to the math it’s actually $19,980 for the principal paydown and $78,980 for the total—but we’re not going to stress out over that $20.)

And there you have it. $79,000 on a house that had been on the market for three years, sold in 70 days.

Imagine if a wholesaler or rehabber tried to make this deal happen. They couldn’t come close! They would have had to give such a low offer it would have been an insult to the seller.

We were able to help this owner sell their home for more than what they were asking and get a family into the property that otherwise never would have been able to purchase it. This type of stuff only happens in the terms business, and that is truly what makes it so special.

Wholesalers and rehabbers = 1 Payday.

TERMS = 3 Paydays!

What do you think of this deal? Have you ever taken on a house that had been on the market for a long time? How’d it work out?