Jul 10, 2020 by - Smart RE Coach

What are you leaving on the table as a Realtor?

In the terms business, there are so many different ways to pivot when you’re the investor that you can make practically any deal work no matter what happens.  Why settle for one Payday (commission)?

We talk about “pivoting” with our deals all the time. In the terms business, it’s just a part of how you do business. The best part is that if you understand all of the different ways to pivot in a deal, you can handle nearly any situation that gets put in front of you.  

Today, we’re going to highlight yet another pivot made by one of our coaches. This is a complicated one, so we’ll do our best to explain all the nuances—but if you’re new to the terms business, you may want to check out some of our more introductory content first or have a personal chat with us.

Let’s take a look and see how this one worked out.

Pivoting from Sandwich to Subject-to

The source of this property was an expired listing found through a Slybroadcast. For those that don’t know, this is a ringless voice message system that we use to drop a message every few weeks to a list of contacts that have expired, canceled, or withdrawn listings. We also use it to target houses that are being sold or rented by the owner (FSBOs and FRBOs).

This house had been on the market for about four months at $649,000. The owners had just retired and were building a home in Myrtle Beach, so they wanted to get rid of the house quickly and transition to their new lives. They figured the house would sell with their realtor, but it didn’t!

Our Associate reached out to them and they seemed interested in structuring a deal. He asked them point-blank, “What’s more important to you? Getting the most money from this home or moving on with your life?”

Their answer was clear: they wanted to move on with their lives and get this over with. 

He suggested that he could take over the mortgage for them, which they were open to. He agreed to take the deal on as a lease purchase, but also asked them if they would be interested in converting the deal to a subject-to once they identified a potential buyer. This would be beneficial to our Associate because the interest rate was low and there was a large potential monthly spread. He would also avoid paying closing costs upfront by starting it as a sandwich lease (A “sub to” purchase means that the home is transferred like a conventional closing but the loan stays in the sellers’ name).

Once again, they were fine with that—it made no difference to them! This is a great example of why you should always ask for what you want. You never know what the seller will say.

Finding a buyer

At the beginning of this deal, the seller had a mortgage balance of roughly $617,000 at a 3.25% interest rate. Our Associate acquired the property on December 16th and didn’t find a tenant-buyer until February—with a commencement date in March.

He was getting a little anxious as this was a soft market. The property was in a rural area in Virginia, so it could be difficult to find a buyer…

But lo and behold, he got a phone call from another tenant (in temporary rental of his)  of his that had seen the property on his website. They were interested in the house—actually, they came right out and said they wanted it!

So here’s what he did…

First, he marked the price up to $669,000. Both the seller and the buyer indicated they wanted to close things out within five years, so he structured the deal as a sandwich lease for the first year and an owner-financing subject-to deal for the next 48 months with the end-goal of selling the property to the tenant-buyer at the end of the term.

Could it go longer? Sure! That’s totally fine—in fact, it’s even better for our Associate as he’ll get more money in the end on Payday #2 ™ and Payday #3 ™.

Just as a point of reference, about one in five of our deals, is closed before the end of the term. More often than not, buyers elect to extend the term to make it easier and less stressful on themselves and when we own a homeowner financing (OF) or Subject to existing financing (ST), we have no time constraints.

The Paydays

Payday #1 ™  is always the down payment, and in this case, our Associate asked for 10% of the sale price or $66,900 in total. He received $20,000 up front and structured four more payments of $6,747.50 on June 1st, September 1st, December 1st, and March 1st in 2021 to complete the remainder of the down payment.

Payday #2 is the monthly spread. For this deal, there are two different monthly spreads—one for the sandwich lease during the first year, and another for when it converts to a subject-to deal. The mortgage payment is $3,650 and the tenant-buyer is paying $4,250 during the first year. So that’s a spread of $600 per month over 12 months, for a total of $7,200.

Once the deal converts to a subject-to, the tenant-buyer will be making their payments with 6% interest, causing them to jump to $4,350 per month for the remainder of the 48-month term. That’s $700 in spread over 48 months for a total of $33,600. Add the two up and you’ve got a total of $40,800 for Payday #2. That’s a pretty sizable Payday #2!

Payday #3 is a little bit different because the Associate will be getting the difference from the balloon payments, which works out to around $23,000 (keeping in mind he sold it to the buyer versus rent to own). 

Basically what’s happening here is that our Associate owes the bank an amount based on the first mortgage, which started at $617,000. The tenant-buyer started a loan with our Associate when they started paying $4,350 at 6% interest. At the end of the term, our Associate captures the difference between those two loans.

In total, all three Paydays come out to a whopping $135,250! 

That also takes into account the additional month of rent which we factor into almost all of our deals. Our deals are generally structured so that we don’t start making payments until 30 days after the term begins, which means we capture the first month’s rent—$4,250 in this case! That’s over four thousand dollars in our Associate’s pocket just from a simple line in the contract agreement.

This is a great example of how you can pivot and change deals to not only get you out of sticky situations but also bring in more profit on your end. Our Associate was able to get far more out of this deal by converting it to a subject-to after one year. Plus, his quick pivots in the beginning—asking the seller if they valued money or peace of mind more, and selling it to the tenant that reached out to him versus rent to own—helped him navigate this deal in the best way possible.

So just remember—you can always pivot! (If you know how…and if you’re in control versus only providing a service).  All of this is fully outlined in our QLS Home Study Program🡪getqls.com.

Click here to receive this special offer from SMART Real Estate Coach for the Quantum Leap System Course exclusively for Lab Coat Agents: Quantum Leap System

Check out the previous webinar here: Living Beyond Commissions Pt. 3


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