Assign Out (AO) vs Lease Purchase: Which Strategy Wins?

All right, guys, welcome to this week's Deal Structure Sunday. I wanted to do something a little different today. I want to go back to my roots of, gosh, 2013 when I was doing a whole bunch of AO deals. And if you're not sure what that means, it simply means assign out. And what we do is we go out and procure the exact same buyer we would in any one of our exits. It's just that we then wrap it in a bow, get it all prequalified, get it all signed. And then send it back by way of an assignment to the seller. So we step away. Now we only get one payday. But I want to show you what we used to call the T-chart, which has now evolved into 3 columns showing the seller what they can get conventionally, what they'll get with a sandwich lease or lease purchase, and what they'll get with an AO. The numbers are astronomical. And so this is one of the reasons it was super easy for me to go out in 6 months And nail a dozen deals. I think out of my first 13 deals, 12 were AOs. Now, there's nuances to that. There's pros and cons to that. But I want to at least give you some ammunition if you're in the learning stage of this, to be able to talk to your sellers. Okay. So having said that, let me walk you guys through the numbers that I'm going to walk you through here are almost identical to the first AO deal I ever did. And it came from a— back then we did yellow letters. Some of you may recall that and you can still do those. The services that do them, they look like handwritten. It's just a little bit spent these days, I think. So now we use postcards, but it went to free and clear absentee owners. Okay. And the gentleman that called off of the yellow letter ends up being that he lived a little bit out of the area, not far from me here. And his daughter had lived in the house. She moved out and he's looking to sell it. And it was free and clear. Okay, so let me show you what I literally do this with the sellers. Okay. I'm going to give you— you get the deal with my chicken scratch, but I literally sit with the sellers and show them this. I show them conventional sale. This is a serious eye-opener for them. A sandwich lease in our language and in their language, I would just put lease purchase. You know, I refer to it as a lease purchase. You can use them interchangeably. I just don't want to confuse anyone. And then the AO, the assign out. Now I'm just going to give round numbers, guys, but, but again, this is almost identical to what I did with this particular deal. And, you know, at a time when I literally needed a check like I needed oxygen, right? It was after the crash. It was just getting back on my feet. This was really cool. For me to go into a seller and be able to with confidence go, look, this is a no-brainer. Like it wasn't even a selling point or a pitch. It was just black and white. Like they're going to make so much more money. The only time this wouldn't serve someone in the world is if they absolutely needed their equity to go somewhere else. And this guy didn't. So here's what I showed him. All right. If you can bear with me, I'll change the color up so you can see it a little bit better. So he was on the conventional market. Get this, for a year, for $225,000. Now, we don't like to let agents also co-market with us, but A, it was my first deal and I'm going, I'll do anything to get this deal. Secondly, it was a guy that I knew and it was a friend of the owner and he knew of me. He was an older agent in the area and the sign had been out for a year and the owner said, look, do you mind? And Dave and I talked, the realtor, and he's just like, yeah, do your thing, Chris. If I get someone who can't afford it, I'll send it to you. You get a conventional, you send it to me. So we just kept it amicable. He's not even around anymore. But here's what it looks like. He would have paid Dave a 6% fee. If I'm a little off on these numbers, guys, sorry, but about $13,500, right? If he sold it conventionally. Now, I'm not even doing the formula I usually do, which is 97% of the ask. That's what I usually do. I said, look, you didn't sell, but if you got 97% of that, then I take off the 6% and the closing fees. I'm just not doing it now. I don't want to confuse the math here. And my brain won't go that fast. I think we're here. We're at, I don't know, roughly 45. I could be off in some change. Okay. So what this comes down to, I think I'm looking at my chicken scratch here, is he would net around $207,000. That's if he got a full price offer, guys. He did not get a full price offer. So I don't, I don't think that would have happened. Right. Okay. Now, this is where it starts to get interesting with the sandwich lease. Let me just scribble this out. I said to him, all right, look, if I'm in the middle, this guy was the type that would be like, I don't need you. And I don't know, back then I would guess my confidence wasn't as great. Just like some of you starting, you're just in a different mode confidence-wise. Just how it is. And so I would guess that I was coming across a little bit less confident than I should. So he's like, I don't need you in the middle. There'd be no fee if I did a lease purchase. He would have his own closing costs. Back in the day, we used to say, oh, we'll even pay your closing costs at the end with our payday 3. But then we found out no seller expected that in any state where the seller paid their own closing costs. No one expected you'd pay it if they were getting money out, as if they're not getting money out, that you usually would do that. Okay. Now, here's what's interesting. And on top of that, we're going to— we're going to do what with the rent? We're going to go to market at $1,500. But we're going to pay him $1,200. So as a lease— and we're going to take half of that as principal. So picture this. This is the sandwich option now, the lease purchase sandwich. Just means if you're newer, you get the seller, you get the buyer, and we're in the middle. We cloud title with a notice of option. It's all on your checklist. So we pay the seller $1,200, but we get a $600 principal credit. Right. Okay. So let's do the math on this. $600 that is going in his pocket for cash flow times a 36-month lease. This is the other sort of advantage for a seller because we're showing him at least purchase at 36, but an AO is going to be 18 to 24. We say on or before 24 just to keep you where my brain is. So in addition to the money above, he gets $21,600 in cash flow. Plus he depreciates it. It's not his primary residence, right? There's all kinds of advantages, but pure math is $246,000 roughly. All right. So you can see the difference here. Now, let me show you where this gets super interesting. Then I say to him, and I honestly forget his first name, I remember the agent, I don't remember him. I say, okay, here's how the assign out would work. I'm not in the middle, frankly. This is scripting, guys. I say frankly, you make the most of this option. I make the least, but I want to do what's best for you. So I want to give you the option. That's how— that's why an AO just sounds like a no-brainer, right? This is exactly what we did. This is the actual number. Go on the market at $237,000. Obviously, you're not going to have any closing costs. You're going to have— I'm sorry, you're not going to have a fee. You're going to have the same Closing costs 2%. I think I'm spot on there. But here are some kickers besides the term being on or before. This is on or before 24 months. This is on or before 36 months. So now he's already perking up right now. Watch this. Plus, because we were going to go out and get $1,500 a month, he's going to get that. We're not staying in the middle. We take our payday one and we get out of here. So an owner that's like a little standoffish and wants all their money and doesn't see why to keep you in the middle and doesn't mind dealing with it. Perfect. Bingo. It literally— the light bulb goes off when you start showing them this way. All right. Now I say to them, look, we're on the market for $237,000. We're going to go out and we're going to get 10% deposit, which, by the way, is exactly what we did in this house. Exactly what we did. It was a mason that drove by that house every day for a year. A year. And then when my sign went up, he called immediately. And his answer to me was, I know I can't get financing. I didn't call the sign. Yours said no banks lease purchase, no banks rent to own. So he called his— what we call the next step form came in. If you're new or not even in our community, you've seen this on YouTube. It just means that it's a way for them to apply and to put what they can put down. He said he could put down $6,000. I said, I, you know, I can consider it. We can have a buyer's meeting. He said, no, no, I really want the house. What would it take to take it off the market? I said, 10%. He came literally just scurrying over to my office. It was me and Nick at the time. That's it. No team. And showed me cash flow statements from his masonry work and incredible cash flow. Just had a bad time during the '08 crash like I did. That's why this story was really cool for me to see. As my wife had told me, hey, go out and help other people do what you did. And this is exactly what happened. You went through the same thing I did. So 23/7. Now here's what happens with the 23/7. The owner gets 11, whatever that comes to, $850, $855, whatever it comes to, $850. And I get $11,850. So I say to the owner, look, I'm going to step away and all I do is I split the deposit with you, but you're going to end up netting a lot more. Let me show you. And I, and I put Bring them into this, to this trend here, to this, to this, to this formula. Sorry. All right. Now, if the buyer, if my math is correct and the buyer is paying $237,000 and they already paid down $23,700, what are they going to owe at closing? They're going to owe around $237,000 minus $23,700. I don't know. I, I think $220,000 might be a little high, but it's around $220,000. Let's use round numbers. $220,000 is owed when they go to get financing. Right. But the owner— so that's what's owed to the owner. But the owner got $11,850. Yeah. $11,850. Right. Half of the $23,700. Now you're going to have— let's see, $220,000 plus the $11,850 plus $36,000, if my math is correct. On this $1,500 a month, $36,000 in cash flow. Plus, again, they depreciated it. What does this come to, guys? If my math is correct, you're in— you're almost at $270,000. $267,000. Throw the $850 in there. So $267,000 versus $207,000 on the conventional market versus $246,000 if I stay in the middle. He just wants out like, hey, I'm leaving the area. Just want out. I'll take that middle option. But can you see why this is a no-brainer for a seller? This right here is what no one else is doing in the marketplace. They might wholesale deals. It's not wholesaling, guys. This is procuring a buyer using our trademark system instead of creating 3 paydays, creating only 1, leaving the rest on the table, the bread and butter on the table for the owner, telling them, look, you look, you clearly make more money. I'm just getting this and I'm leaving. And then you're in and out of this thing in 18 to 24 months. Now, we can talk this week in your coaching calls if you're in our community about, you know, what if the buyer defaults, you know, that 2 to 5% chance or 2 to 10%, say, all kinds of options for them. So we can talk about that. But I just want to give you guys sort of like the old T-chart, which is now— I don't know what you call a tri-chart, but it gives you an idea of how to talk to sellers. And you can and should be using this right away if you want to go ahead and Nail down a couple of quick deals, quick cash flow. Then we get super creative. You get cash in your pocket, we can start talking about refinancing and sub-to and all that good stuff. But this right here is what got me started, and I want it to be kind of like the crutch for some of you to get started if you haven't popped your first deal yet, or if you just want to insert some of these into, into your mix. Not sure where to get started? Go to smartrealestatecoach.com/getgoing for free books, strategy calls, and a whole bunch more. We're going to help you get going the wicked smart way. We've been after this for over a decade doing exactly that. Okay, that's going to wrap up our Deal Structure Sunday. But today, guys, totally different. I want to give you some skill set stuff. If you're curious how this goes on literally weekly in our community, a cool experience for you looking at this from the outside of our community would be to come to our In the Trenches boot camp. It is unique, very unique, because we get in the, in the, in the classroom here that we built at our office. It's tiny. This week, for example, at the time of this filming, we're going to see about 14 or 15 people there. And we do live calls on your leads. We tell you ahead of time how to get those, what to bring, when to come in with what. And we'll make sure we— the coaches, myself, Zach, whoever is going to be with you that day— we're going to be rubbing elbows with you and calling your sellers. It's pretty cool. And then the next day we structure those deals on the whiteboard and we send out offers and usually making appointments. So when you leave here, you fly or drive out of here and you're going to an appointment. Really cool. To learn more about that, you can go ahead and email support@smartrealestatecoach.com and find out when the next dates might be coming up. By all means, we want you there. Be sure to subscribe to the channel here because every Sunday we do these Deal Structure Sundays, every Monday Motivational Monday, and every Thursday Q&A Thursday. And those 3 components sort of make up like the perfect, well-rounded Genius model is what we call it, so that you understand how to plug and play here and let us work this with you. This is what we do. And I love, love, love seeing people come into the community, especially like I had to start and I needed a deal like I needed oxygen and water and pop these deals and get immediate cash flow going. Because let me tell you something, that $11,850 check I got in August of '13 as my first creative deal, after being in the business for years and years and not knowing how to do this was a lifesaver and a life changer. See you next week on the next Deal Structure Sunday.