Link Ervin closed a 60-month sandwich lease for $525,000 with $350,000 underlying debt. He pocketed $60,000 upfront, collects $900 monthly spread, and expects $54,000 more at the end of the term. A 24-month minimum prevents the buyer from cashing out early.
All right, welcome to another Deal Structure Sunday. It's Chris Prefontaine, and I'm joined today by no stranger, Mr. Link Urban from North Carolina. Did I get that right, Link?
Yes, sir.
You know what that tells me? We didn't— we haven't done this in, in a little while, so we gotta do more of these together.
Yeah, it's been a little while.
All right, let's dive in because If you're new as a viewer watching the deal structures, we do fire up a deal structure overtime at the end of this so you can get some of the nuances. So Link has a couple curveballs that happen and some different nuances. We'll do that later. Link, let's talk about deal type first.
Okay, this is a 60-month sandwich deal.
Sandwich, 60-month. Again, I hate to assume here, so I want to make sure that The viewers understand a sandwich lease is nothing more than, as you'll hear, Link put the seller under contract with a lease purchase. He then filled it with a tenant buyer. You're going to see the numbers here in a minute. He's in the middle, and thus the sandwich lease language. The only state you can't do that, to my knowledge right now, and I'm not an attorney, is Texas. All right, Link, uh, source of this one. I know there were some nuances, so we can dive deeper later, but generally, what was the source?
It was a FSBO, and then it was an outbound sales call that I made.
Okay, and you structured what kind of term? You said 60?
60 months, yep. Okay, I offered a couple different options, but yeah, they went with 60 for the price.
All right, so that might be something if you remember to bring it up in the, in the overtime, actually kind of what that looked like and felt like for a conversation. Cool. Okay. On a sandwich lease, just again to catch the viewers up in case they're new, we don't talk price. We use it to calculate what's the debt and what's the equity that we owe to sell at the end of the 60 months. What was the debt on this one, Linc?
Total debt was roughly $350,000.
Yeah, we can use round. $350,000. And then When, when he or she was on as a FSBO, what were they selling for?
They were at $529,000.
$529,000 roughly. And how much equity did you build into this on top of the $350,000?
It ended up— the offer that they accepted ended up being $175,000. So I ended up paying $525,000 on a 60-month term.
Okay, really cool. $525,000 was the sales number, so to speak, to talk it through. But just to let the Wicked Smart viewers know, at the end of this term, Link's gonna provide the $175,000 and he's gonna pay off the loan, which is no longer $350,000, it's something south of that. So that's cool. All right, uh, this was— I think, was this a record payday 1 for you, Link?
Uh, yes, so far it has been a record payday 1.
That's awesome. That becomes the norm, which is kind of cool mentally. How much payday 1 and And upfront versus overtime?
It was— there's no overtime. It was all upfront at $60,000, which was 10%. I was asking $599,000 for the house, and so they paid the $60,000 plus first payment plus the $595 admin fee. So they paid just right at $64,000.
Oh, this is great. Okay, so let's go to monthly payment and then come back up to that. That's interesting. tweak that we do all the time. And I want to make sure we don't miss anyone that's new. So, the monthly payment on this underlying $350,000 is how much?
Monthly payment underlying is $1,400.
Sweet. Is that PITI?
Well, we've got to pay taxes annual. There's another $250 in taxes. So, it's $1,600 basically.
Alright. Let's Let's put $1,600 just all-inclusive, but that's a nice low payment. $1,600 all-in. Payment from the buyer monthly?
Well, I had them at— I started at $2,699 and I ended up closing them at $2,499. So they're $2,500 a month and $1,600 a month. So there's a $900 a month spread.
That is sweet. And here's what I wanted to come back to so everybody understands what you said at the very beginning. Built into our buyer LOIs, our letters of intent, in our closings, we charge them a $595 admin fee. We used to call it a legal fee. Attorneys advised us don't do that because we don't represent your buyer, so we call it an admin fee. Out of that admin fee, we pay our legal transaction fee and any other miscellaneous. We actually pay an admin bonus too in our family companies. And then Link said something real important. He got $60,000 payday 1, but he also got first month. So you got an additional $2,499, Link?
Yes.
$2,499. And your contract starts paying the underlying debt the following month, correct?
Well, not in this case. One of the ways that I had— one of the ways, one of the things that I had to do to close this deal, which I don't normally do, but what I had to do to close the deal was to go ahead and assume the payment starting February 1st. So I actually paid that payment that I collected.
Okay, so no big deal. So it's not an additional cash in pocket. For the, for the sake of, uh, understanding it, we try to do that.
It's still there, Chris.
What was that?
It's still there. The $900 spread is still there, correct?
Yeah, yep. Okay, so if you take out— if you take 60 months times $900, what's that?
Uh, $54,000. Yep.
Okay, so we got payday 1 of, uh, $60,000. We got payday 2 of $54,000 if it goes full term. Full disclosure, Link could get a surprise call in month 32 and they could cash it out. I, you know, who knows? Life happens. It could go the full term. Um, okay, so we have a price premium of, uh, what's about $75,000?
Yes.
Okay, we We took in already $60,000. And we had principal paydown of how much of that $1,600 is principal payment?
$500 a month.
Huge. So—
Yeah.
Okay, awesome.
Full terms, another $30,000.
$30,000. Yeah, $30K there. So all 3 paydays We're sitting at about $180-something. All right, payday 3 is incorrect then. So price premium of $75 grand, principal paydown, that's $105 minus $60. Ah, there's the difference. Uh, we're at like $45 grand. Sorry. See, you don't have to be perfect math to pull off these deals. Doesn't matter. Now we're at, uh, roughly, uh, $110 and about $155. That makes sense. That makes more sense.
I mean, it could be. It seems high though. And I will say, these buyers had pretty decent credit, but I put a 24-month minimum term in for them. So that was one of the stipulations of accepting them as a buyer.
Okay, so let's talk about that. That's important. And then we'll jump over to overtime to dig in deeper. So we got payday 1 of $60,000. Let's just— if the thing goes full term, we got payday 2 of $54,000. And we got payday 3 at $45,000. So it does come out to that if it went $60,000. Why did Link— if he has $60,000, why did he put it to $24,000? Um, Link, I'll ask you for anything I'm missing, but one is he has control, uh, because he has a clock ticking with the buyer and they have to keep their act together. If they keep their act together and do everything and they need a little more time at the end, I'm sure he wouldn't mind. But he also has the option of increasing price, changing terms, doing whatever he wants. He's in control is the point. Did you have any other logic to doing the 24-month, Lake?
No, I just, I wanted to make sure that they didn't try and cash me out in 6 months. They have some other things going on and may have some money available, and I didn't want to get cashed out in 6 months with such a good deal with so early in the offer. I mean, like, this house was on the market 30 days or less.
Yeah, that's awesome. So this comes up not a lot, maybe once every couple months in the Wicked Smart community, and that is, can you do a minimum to make sure you lock that in? Do whatever you want, it's your house, it's your contract. So nice job, Link.
Right. Well, in the past, in the past I've not done that and wished I had, so I'm—
Well, live and learn. What deal number is this for you?
Um, 20-something total.
20-something. Guys, this is cool. So, and you— there are nuances, there are lessons. You don't get up, you don't pull out $100 grand out of every deal. You have some headaches along the way, and that's how you learn, that's how you get better. All right, well, that completes another Deal Structure Sunday. Link and I are going to jump over to the Deal Structure Overtime and dive into a little bit more of the nuances from where the deal came from to conversations. So go ahead and fire up the next overtime over at wickedsmartacademy.com. We'll see you over there.
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