How to Structure High-Level Terms Deals

When you go to get an appraisal to purchase a property, it comes in very, very close to the purchase price. When you go to get an appraisal for a refi, it very much depends on what you're trying to do for your refi. As much as the industry is not supposed to be skewed, it's skewed.

And they like it because look at the equity, look at their loan-to-value. They're low, they're fine. They gladly gave him the money.

Yeah.

Thank you. I'll take your house back. And then they got $600,000, whatever, $300,000 equity.

Yeah, I've had that come up before, so I was just—

that's why I was asking. Okay. Brad, what was the other one, Brad?

The other one I sent yesterday was actually one of the business partners. He— the Lizardo. I think it was in the same post that I posted this one. Yeah, just talk.

Oh, it's not the same house.

Not the same house.

No.

So this is— this was one of the business partners. And in the conversation with this house, kind of explaining the process, he's like, well, I might have another house for you. And then incidentally, the other guy texted me and he's got other houses in like Louisiana or something.

So I figured that out.

But this guy wants to leave this— leave the country.

He, he's originally from Honduras and he wants to, I think he, he's trying to just offload his stuff and move back to Honduras. So the, the thing that's interesting about this one though is he's, he's a, a builder contractor himself. Obviously that's how he did the, the reno on the other place. But it's about 2 months left to, to finish. So just as I—

is it—

do we just hit pause for now and it's like, hey, talk to me when, when it's done?

Based on only what you told me so far, my personal opinion is I wouldn't hit pause if he's open to terms and, you know, he's open to terms and you guys can come to terms with one of the coaches' help. Start marketing it. That's awesome. There'll be no competition for you with a new construction home not even done yet on turf. Okay.

I guess my follow-on question to that would then be how are we going to run comps, all that kind of, all that kind of stuff before—

Finished product. Okay. You don't have to visually see it. Finished product.

Okay. But our standard flow of appointment walkthrough, all that, you just modify that a little bit.

Yeah. Don't get caught up in it.

Okay.

Yep.

And then put your buyer hat on, Brad. It's your market, right? It doesn't hurt to spend a few minutes and say, all right, let me do this. Forget comps for 1 second. Let me put my buyer hat on. Let me go searching in the $1.8 to $2.2 range, see what I find. Oh, this house kicks ass. It's way better than anything on the market. And I'm going to offer terms like that. Just from a marketing standpoint, it's too early to tell, but you're fine so far.

Okay, awesome. And then one quick follow-up question to kind of all of this. Apparently everyone on the Gulf Coast here is trying to offload their investment short-term rental properties because my VA's come up with a few people interested in terms in like the 3.2 to 4.3, beautiful houses on the beach range. Is there, is there a ceiling to where this becomes— this business model becomes difficult?

No, it depends on your area. So if that's the norm in that area, like Rusty doesn't go below whatever, $1 million, because that's the norm in his area. So as long as it's the norm, they're not out— it doesn't sound like there are too many outliers. It's normal for your area, correct?

Normal for properties, short-term rental properties. Yeah, not a whole lot of people. I mean, I guess I don't know. I have a hard time seeing people doing the long-term rental, rent-to-own sort of thing in these beach houses.

But rent-to-own or owner financing, remember, you guys, not just Brad, there are— I know friends that they either went through a divorce or had other reasons that they couldn't buy it yet. So they did short-term owner financing and then they put a loan on it later. You're more likely to fill this with an owner-financed strong buyer with strong cash down than you are rent-to-own. So don't worry about that yet. The marketing side of it, get us involved in each lead and we'll figure out the marketing if it warrants it, if it justifies it.

Okay.

So really there isn't, you know, it's— if it's normal for the area, there's not really a ceiling as long as there's some margin, you know, some equity in there. and some ability to, to wait.

Yeah, I'd love to find someone strong, 20% down, 30% down on financing, and then assign my agreement to that buyer. But there's a million ways to do it.

Okay.

Okay.

Very lucrative for you, by the way.

Yeah, for sure.

Now, if you told me the average in the area is $2 million and you got a $15 million house, do I think you got a needle in a haystack? Yeah. Okay, but that's not the case. That's my opinion. If anyone else has a comment on that, please. Well, thank you, Jeff. Cody, good to see you. Uncle Albert.

Chris, you wanted me to bring up the deal that involved the realtor from Monday.

Yeah, refresh me because I knew I told you so I wouldn't forget. What was that?

So this was a realtor I talked to last. He's a realtor, but he owns the property.

And he's the one who tried lease purchase.

He's the one that tried the lease purchase last year. Correct.

Okay. So all I was going to do is talk to you guys. Rusty, you can kill that. Thanks. When you guys— I want to ask you guys first, when you run into people that say, yeah, I tried that, didn't work. First of all, have you run into that? Raise your hand if you have. A seller saying, yeah, I tried that, didn't work. Okay. Let's talk about script around this, because the reason is there's usually a reason it didn't work for them. Right. And more likely than not, it's they didn't take a down payment. They don't have that. They just took a glorified renter with an option to buy. So what have you guys done with that comment from a seller, or are you all unclear?

I mentioned Supriya.

Good. I was more drilling in my brain when I said it, and that's valid. I was more going with the digging into what— why it didn't work for them. Because I'll say things like, let me give you an example. Derek said, yeah, I tried that, didn't work. All right, let me ask you what didn't work. So you let them talk about a little bit. When Dave's guy— Dave, stop me if I'm wrong— when Dave asked the guy, the guy said, I didn't take a big enough security. Okay, so right there he's in the wrong. He's not doing a rent to own if he did a security, right? So you have an opening there to do some authority work with what you know how to run the rent to owns, right?

Yeah, that's not— yeah, I didn't make him the question. He just, he just submitted. He just gave it to me that he didn't take us something about security, not taking a security deposit or not enough or something.

He thought that's why. It died, right?

Yeah, I— yeah, I'm assuming. Yes. That's why he didn't like it for sure.

A security deposit implies what, you guys?

A rental.

They get it back. Taking it back. They're going to get it back unless they trash the house. So it's not a rental. So that's where I would have started. And all I was— I just want to make sure you guys are confident and equipped when someone says it doesn't work. Didn't work because they didn't do it right. Yeah. And sit through your words and that you can say we're the foremost expert in the country. It's true. And Safria, and then here's why yours didn't work. Let's let's let's tackle it. This guy's not shutting Dave down because I think he's open actually, Dave, right?

Oh yeah, he's he's ready to get rid of it. He wants to because they stopped paying in December, and he's right now he's trying to evict them to get them out, which is supposedly this weekend.

And then he'll do a sub too, right?

And then and then yeah, I asked him if he wanted to do a lease purchase where he still controlled it, or if he wanted me to. Transfer the deed and take over. And he's like, yeah, I just want to be done with it. It's yours. So, okay.

Important for everybody. How old was that lead? This is why I tell you guys to just wait sometimes.

It was last summer, sometime like June, July, when we first— when he put it on the market as first for sale by owner.

Yeah.

And then we— I think I followed up in like August and he didn't answer. And so I just sent some letters and let it sit. And he texted me in December, like early December. He just texted me. I tried to get him on the phone. No answer. And then all of a sudden, out of the blue on Monday, he called me and said, hey, I need to do something with this. What do you want to do?

So that's why when someone rents you guys, you keep in touch because, you know, the percentage of a headache is high. I saw Sandra answered. Thank you, Sandra. Tricia, sorry, we talked jargon with some new people. I should know better. Creative Financing Real Estate Association, CFREA.

Yeah, I—

sorry, Rick.

That's all right. I typically agree and just say, yes, that's true. Only about 20%— typically only about 20% of lease purchases work out. And however, I use Safria and I say between us and our partners, we've purchased over 1,000 properties nationwide with over a 90% success rate.

And you want to keep it simple. I say we have an inverse relationship. We close more than 80%, to Rick's point. So, and when you say things like that, you already establish authority. Not that David needs to now. The guy wants to get in the house, but some people wouldn't be that open if they got stung. Dave, it's great. Keep us posted on that, buddy, because that's— he's exactly your avatar right now.

Right, exactly. The only thing I had a question about was the contingent on the buyer. If he doesn't want to do one, how far? And just try and go as far as we can on if he doesn't want to do a contingency on the buyer.

Well, then, yes. And I'd also want to make sure if you're going to commit to a date that you get equity for it. And he's probably at a point where he's just go, yeah, does he have equity?

Yeah, it's between $50,000 and $60,000. He just wants to sell it at the appraised price, which he had last fall for $290,000.

And he's basically—

$230,000 is what he owes. But PropStream is showing $240,000.

So, so there's a term and a price for contingency. There's a term and a price for I got to commit to this in 90 days.

Okay.

And by the way, that sounds like that size house in your area, if the mortgage payments Manageable is probably a sweet spot. Is that a kind of median, like a sweet spot, easy to fill?

I think so, but I'm not familiar with this area he's in. He built a house in an older, like, neighborhood area. He, he just, he took one property that was and then split it. So he has 2 houses on the property and we have talked about both houses. So I'm not sure what he's doing with the other one because he switched on me. We were originally talking about the second one. And he wants to talk about the first one. So I'm not— I still don't want to have the other.

So yeah, I think you'll find when you get with Nick on this for the disposition side that that's probably a sweet spot in your area and I wouldn't mind coming to it, but just commit. Like, you guys remember when I say commit, I've talked to a few of you individually about this. Put a hard closing date at 90. If you can't do it by then, is it realistic? As long as they don't have time is of the essence in their contract. Is it realistic for you to get a month extension? Sure. Even though it's peace of mind for them that you're doing a hard date, play around with that.

Okay.

Everybody clear on CFREA? Because a couple of people asked as it was getting typed. Everybody knows what that is now? CFREA. Everybody's clear? If you're not, it's the assessments that you're taking at the end of each mod. And then once you complete that, you get a C average, I think, then you get certified. Yeah, you got to be above 70%, I think. And you get degrees. You should use that.

That's why I failed it.

Damn it. You should use— you guys, certified is if someone's outside the community. If you're an associate, it's accredited and you should use that emblem on your— that badge on your emails, on your website.

Everywhere.

Okay.

Side note. I'm glad that came up.

Okay.

Derek, I know you're hitting the road. So is there anything you had in your hat that you want to make sure we got out today? And if not, it's okay. I just wanna make sure I don't cut you off.

Yeah, I'm gonna go mobile. So hopefully still be able to interact here. But I actually want to just bring up the take-in that I got on Sunday. More just from extend your brains a little bit on possibilities, if that's okay.

Yeah.

Yeah.

Okay. So this is one of 3 kind of crazy deals I have going on right now, but it is under contract and I'll just call him Santa Claus because he's 65 years old. He's got a big belly and white beard and white hair and he looks like Santa Claus.

Yeah.

Okay.

We got the visual. Perfect.

Yeah. Santa Claus has 2 houses on 5 acres. One is a frame house, kind of a ranch-style walkout basement. The other was a mobile home. That he encapsulated and added on to and several outbuildings. He owes about $80,000 on a mortgage, first mortgage, but he's $20,000 in arrears. So he's got about $100,000 of first position debt.

And the—

both properties, both houses need work. Okay. So what I said to him was, you know, and by the way, sheriff's sale, his foreclosure auction is on the 27th of January. He put in for a loan modification. He got denied. And so we are going to be catching up his first mortgage, taking it subject to. He's going to carry back a note on a participating, participating note accruing at 12% interest for about $250,000. So my purchase price is $350,000, of which $100,000 of that is first position debt, no monthly payments carrying back at 12%. We are going to subdivide the 5 acres and sell each house off individually. So the after-repair value is $800,000 combined. If I did this as a straight flip, if I just raised the cash, went to a hard money lender, whatever, I would have to raise about half a million dollars and in the end sell it for $800,000, would probably net $250,000 after commissions and stuff like that. Right. Instead, I said, well, I'm going to raise $150,000. That's going to be the rehab money and catch up the, the arrears on his mortgage and the carrying costs I need until this project is done. My private investor goes in second position behind the bank. Santa Claus goes in third position. When we sell off each individual parcel, we have a hierarchy of what gets paid off first. And then he will— I get the first $160,000 of net profit, anything over the $160,000. And why $160,000, you ask? That's 20% of the, of the after-repair value. I get the first $160,000 of net profit after all money is paid back. Any profit over and above that, he and I will split 50/50 on top of his 12% accruing on his seller carryback. Okay, so I project I'll make $200,000 plus. He should get $350,000 minus his first position debt. So about $250,000 at 12%, plus he'll probably participate in another $30,000 to $50,000 on the back end. Why would I go this route versus just buying it for cash? I don't have to raise half a million dollars and I'll probably still make $200,000. I only raise $150,000. Yes, I'm making potentially 50 grand less, but I can keep my private investors, $350,000 worth of private investors, keep that powder dry for a different deal. Makes sense.

How long this—

you guys, go ahead, Judy.

Derek, I've got one year on my, my private money, but I can extend. We've got surveyors and everybody else is already lined up. I think we can get the— get it subdivided, approved, and the first house on the market by, by early summer. He is going to stay living in the, the mobile mansion until we get to that point. That's part of our deal.

But did you talk about the source, Derek? What was the source? If I didn't get it, if you did.

I believe this was a social media inbound lead. I started talking to him about a month ago, but he was trying to get the loan modification. He called me back the day his loan modification was turned down.

Yep. So you guys, this might be worth you rewatching and, and, and scribing some notes. But I also think, Derek, when we talk today on your podcast, let's book a Deal Structure Sunday and map that out on a whiteboard. It'd be cool.

Oh, and Annette wants me to share the other deal. Annette, you're killing me here. The other deal, which is not under contract and should be tomorrow. This is a sad thing, but there's a condo association that foreclosed against an elderly couple who— they have serious memory issues but have not been diagnosed with memory issues. So as of today, they are still of sound mind and body to sign legal documents. Condo association foreclosed for $16,000. It went to auction last week, Tuesday. So there was a winning bidder at the auction. But in Wisconsin, we have until the confirmation of sale hearing, which is scheduled for January 29th, at which the property owner can still redeem themselves. So condo's worth about $330,000, needs $50,000 in updates. When they move out. Total debt, there's underlying debt of about $115,000 plus the condo association, all in and done about $135,000-ish worth of debt. They are going to be homeless probably the second week of February with none of their equity. And so I now have power of attorney. I sat down with their underlying lender on Monday. And we now have 2 social workers involved, one from the county. As far as elder care, I do not want to be accused of taking advantage of elderly people. And I have— I have till the 29th of January to stop this. But all I need to do to stop it is pay the condo association off.

$16,000.

Yep. $16,000. I can then take over their first position debt, sub-2, And in exchange for their equity, give them a period of time to live there. That's what I'm working with the social workers on, because the social workers really want them to move to a safer place.

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. So I want to know how the condo association can sleep at night. $16,000.

That is one of 5 condo association foreclosures in that county this month alone. I have another one that's going to sheriff's sale Tuesday. By the way, Chris, I'm probably going to miss the President's Club thing on Tuesday. Sheriff's sale, free and clear condo, $100,000 or $260,000 condo, free and clear, $11,000 worth of condo association fees and they're foreclosing. And this gentleman is 53 years old. I door knocked and I got him to talk to me. Now he's been ghosting me, but he's 53 years old, started having strokes, can't hold a job, got in a car accident, can't drive, is not on disability yet. And he's got a couple hundred thousand dollars worth of equity and nobody will help him and he's going to be homeless.

So—

Guys, if those deals don't scream at you why we do what we do, I mean, I didn't know about those deals. And so to come at the end of a mastermind call was very timely because It's insane. And there's a lot more than that that we're hearing about going on.

Well, and Victor is that guy's name. Even if he won't communicate with me, if I can win the bid at the sheriff's sale, I'll buy it that way. Yeah, I would still do a leaseback with him. 100%. Yeah. He's just, you know, we can do very well. Both of those are high 5-figure, low 6-figure profit deals in the end and helping them. And helping him.