Are 2 Bedroom Homes Okay For TERMS Deals?

We get this question all the time, and the short answer is… YES!

People often come to us asking about what types of homes they should avoid and if smaller deals—like two bedroom homes and condos—are worth doing on terms. Our short answer is… Yes! Two bedrooms and condos work great on terms and they’re absolutely worth your time.

As our business has grown and our cash flow has increased, we’ve become more selective with our properties. We often pass on two bedroom houses just because we have so many other things going on. We are able to be very selective with our deals because of all the work we’ve put in to get to this point.

But when we first started out, we were doing everything. Two bedrooms, condos—you name it, we did it. And that’s because we couldn’t be selective with our deals. In fact, those small two bedroom deals are the reason we were able to get to where we are today.

And, by the way, we’ll still do two bedroom deals if the numbers are right. After all, it just comes down to the math. You should never avoid deals or hold yourself back from potential revenue—and to show you what we mean, let’s look at an example.

One of our first sandwich lease deals

Back in 2013, we stumbled upon a woman who had a two bedroom ranch on the market for $219,000. She had recently been divorced and was moving to Florida, so she needed to get rid of the house.

The house wasn’t selling, so we took it on. In fact, this was one of Chris’s first ever sandwich lease deals! He had done A/O deals in the past, but wanted to try a sandwich.

Here’s how it worked out…

She owed $186,000 on the home. The PITI (principal, interest, taxes, and insurance) payment was $1,162 per month and we were able to find a tenant buyer at $1,500 per month with a $219,000 sale price. The principal was between $200 and $300 per month (these are fairly rough numbers as the deal happened a long time ago).

So, all in all, things were looking pretty good. But about a year from the anticipated closing date, something happened. The tenant buyers were a couple and the fiancée left. The man wanted to stay in the house as he had done a lot of work on it, and was committed to doing so. But he was honest in telling us that he would not be able to close on it at the agreed upon time.

He was a great tenant who always paid on time, so we were fine with this. But we had to figure out a way to make this work with the seller…

Pivoting to a subject-to

The first thing we did was turn that tenant buyer into a regular tenant. We then talked to the seller about converting this to a subject-to deal.

We had been in touch with the seller frequently, and we knew she was hurting financially. So we called her up and proposed to take the deed off her hands and keep the payments up. She said yes, and was ready to make the switch right away. We had our lawyer draft everything up and the deed was switched over to us in no time.

Once that paperwork was all taken care of, we owned the house and were responsible for making the payments. At that point, the buyer was paying $1,680 in rent (due to rent increases over time) while we were paying down the principal every month.

This deal is still going on today, and our tenant has never missed a payment. The house is now valued at $259,000 on Zillow and we owe $136,000. That means we have at least $123,000 in equity on the home…

So, there are two options now. We could sell the house and cash in on that equity, or we could keep things going until he is ready to buy someday. At that point, the new price could be $300,000 or more!

We’ve opted to keep this deal going, but the lesson here is simple. Even with these pivots, this small two bedroom home has given us some great cash flow through the years and we’re slowly building up equity. When we do decide to sell the home—either to someone else or the tenant—we’ll be making a solid Payday.

And like all of our terms deals, there was no money down and little time invested in this deal. So when people ask us if it’s worth doing terms deals on two bedroom homes… We tell them, YES! This is just one of many examples of why you shouldn’t avoid certain deals. Open yourself up to all of the deals available to you—especially when you’re just getting started—and your cash flow will increase exponentially.

Have you ever done a TERMS deal on a two bedroom home or another small property? How’d it go? We’d love to here about it.