Can You Really Find Terms Deals Going Door to Door?

No one would assume that going door to door is worth it in real estate, but this deal says otherwise.

Could it really be worth your time to go door to door in your neighborhood looking for terms deals? You might not think so, but this one deal from one of our Associates could change your mind.

One of our Associates told us that every time he secures a new terms deal, he walks around the neighborhood and introduces himself to the neighbors, explaining that he just bought a house in the neighborhood and what he does as a real estate investor.

It only takes an hour or two every time he lands a new deal… But that small time investment paid off big time on his latest deal. Let’s take a look at it.

When realtors fail, we can save the day

As you can imagine, the source of the deal we’re looking at today came from one of our Associates who introduced himself to a few of his neighbors after he closed a deal in the area. A few months after he did this, one of his neighbors talked to someone that was having trouble selling their home and sent his contact information over.

As it turns out, this person was a woman whose husband had recently passed away. They had bought the house two years prior and she received it in probate—but she didn’t know anything about mortgages or how to handle this situation on her own.

So, like most people would do, she contacted a realtor. The realtor put it on the market and soon told her she had a cash buyer. She told the seller to pack up everything because this buyer was ready to close the deal and would be moving in in March.

But in February, she got a call from her realtor saying that the buyer’s loan fell through. (Even though she originally said it was a cash buyer!)

The seller had quite literally packed up her entire home and was ready to leave, but now she couldn’t. What could she do? She needed a solution—and fast.

The gift of terms

Our Associate reached out to her and it was like someone had placed a huge gift in front of her. He explained to her how terms deals work and that he could get her out of the house right away. She called him the next day and he drew up some numbers, went over to the home, and signed a contract with her on her coffee table the same day.

They settled on a 48-month sandwich lease deal, with the stipulation that it would turn into a subject-to deal once our Associate found a buyer.

The house had previously been on the market for around $338,000, but our Associate simply asked the seller what she would like to get out of the deal. He found out that she wanted to move out of state and that she needed about $20,000 in her pocket to do so.

That made his job simple. He offered to pay off her mortgage and give her $20,000 in cash for the house. It was settled.

The seller owed $266,428 on the house—meaning our Associate effectively “purchased” the property for $286,428. But as you may or may not know, we rarely talk in terms of “purchase price” because what we’re really doing is paying off the seller’s mortgage and giving them the difference in cash. In this case, the difference was $20,000.

3 Paydays ™

Let’s take a look at the Paydays on this deal. As a reminder or for anyone new to this column or our content at Smart Real Estate Coach, we structure our terms deals with three Paydays to provide consistent income throughout the length of the term.

• Payday #1 is a down payment at the beginning of the term. This is sometimes spread out over a few payments over the course of the first few months of the term, if necessary.
• Payday #2 is the monthly profit from what we owe the seller to what we’re getting in rent from the tenant buyer.
• Payday #3 is the big one where we get the surplus from selling the home to the tenant buyer plus all of the principal paydown that has accrued over the length of the term as we paid down the mortgage.

In this case, Payday #1 was a down payment of $34,000.

Our Associate owed $1,600 per month to the seller and listed it for $1,990 per month in rent. That’s a monthly profit of $390, which comes out to a total of $18,720 for Payday #2 when you multiply it out over the length of the term.

The sale price of the home ended up being $338,999, almost exactly what the realtor was listing it for. That’s a profit of $52,571 on the sale of the home. But the principal was also getting paid down by $429 per month, which adds an additional $20,592 over the length of the term. When you subtract the down payment (Payday #1), that’s $39,163 for Payday #3.

Add all those Paydays up, and you’re left with $87,563 in total for this deal.

Would you walk around your neighborhood and knock on a few doors for $87,000? I sure would.

This is an example of an inventive technique that most people wouldn’t think of. What interesting techniques have you used to find deals? We’d love to hear about them.