As you know if you’ve followed our articles, my company and our associates do real estate deals differently. We use systems that dramatically increase the odds of getting a tenant buyer to the mortgage-ready stage, thus setting them up to succeed. Despite our systems to better ensure that, life events do occur. But once you understand how to pivot when this happens, you’ll remain profitable.
Practice Patience & Persistence
First, my associate Mike made the call and explained how we buy. The seller had moved out of the area and had just recently placed a renter. In fact, the renter paid the year’s rent up front and the seller couldn’t resist—$24,000 day one.
The seller was familiar with our terms type of deals. He told us the renter had recently been left a sum of money from a relative, and he suggested that we could convert that renter into a lease-purchase buyer. Since the renter had a full year to go already, the seller suggested we wait until month seven or so to start trying to convert. Our backup plan was to get our own new buyer.
Failed Deal 1: The Breakup
And so that sat in the follow-up folder on our end, with good reason to have a long shelf life. But before we could ever make our move, the tenant had a life event. In this case, the renter broke up with his girlfriend and wanted to move away from the area. This was with about seven months left on his (pre-paid) lease.
That’s when a lot of things started falling into place. The seller was nice enough to let him out of the pre-paid deal and refund the money, and the renter was fine with showing the house until a likely buyer was found through our marketing efforts.
This property wasn’t close to our area, so our associate Mike would often send potential buyers over and let the renter show it in the evenings. We never show property, in fact. We arrange for sellers or renters to show, or if empty, we set up a lock box.
Before the seller moved due to job relocation, they had recently put at least $40K into a kitchen remodel that really made the home more marketable in every way. The home also had solar power.
There are ways to increase monthly with the buyer after you get them in for a buyers’ meeting using adjustments for taxes, solar, and other neat techniques. Our all-in costs were $2,475 monthly and that included solar so we raised the lease by $50 to pull in more profit than originally advertised.
Source: Expired (broadcast)
Price: Purchased $350,000 sandwich
Monthly: $2,475 PITI — with solar included
Tenant-Buyer: $2,725 (after PITIs $300) — plus $50 for solar add-on
Payday #1: $22K
Payday #2: $300 monthly spread X 36 months = $10,080 (if cashed out in 36, more if not)
Term/Buy: 48 months
Payday #3: $500 principal paydown X 36 months = $18,000 — more if it goes longer, plus the difference between the buy price and sell price
Term/Sell: 3-year with $22K down
Failed Deal 2: The Tragedy
The good luck with the first buyer was soon countered with a less-than-ideal turn with the new tenants. The wife passed away and the husband was unable to continue making payments—despite the illegal marijuana grow he had going on the property.
The house was only empty for a few months and when Mike took the initial $26,000 deposit, he put aside some to leave a reserve in case of any hiccups like this. If you minus the two months of mortgage payments, he was still up $21,000 in profit before securing an actual buyer!
Third Time’s the Charm
Back on the market, the first buyer who saw it tied it up with our rent-to-own program. He was the most qualified. He had seen the videos and photos before he contacted us, which is always ideal if you’re following our systems. This is because 80 percent of the calls you’ll get will be renters. Our automated lines instruct them to go to our videos, which educate them and assure us that more of the calls will be from people (like this) who went through our education process before calling.
The young buyer had an established job, but his credit report showed past mistakes. However, he had already reached out to some recommended credit recovery programs, which is a rarity and a very good sign.
Another sign that the buyer was eager was that he had already filled out our “next-step” form before viewing the house. The buyer consistently showed they were not only interested but also disciplined and serious in their research and intent. Signs like this told us that they would be responsible and are organized.
Here’s how the second buyer worked out.
Payday #1: $15K down ($12K immediately, $3K 4 months later)
Payday #2: $10,800
Payday #3: $43K ($24K sale price difference + $19K principal paydowns) $389 – $15K
Mike followed up on the buyer to make sure they were on course to finish this deal out at the end of terms. We checked with the credit enhancement company we use and saw that he was making progress in terms of credit repair, too.
Mike had him make payments via direct deposit, and he has not missed so far. That’s called being thorough.
He was punctual and Mike felt good about him as a buyer. When the buyer saw the property, he said he loved the house even more, which can be a good time to negotiate a bit more on the sale price. But Mike was more excited to get the deal done on the existing terms than to risk falling short of the goal at the end of terms.
Peace of mind can be its own kind of profit.
Have you experienced a deal go sideways? How did you handle it?
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