How We Structure Creative Deals That Work

We're conservative investors. They like, they appreciate that. So I got to build in a buffer here. I don't want to disappoint.

I don't want to overpromise. It is a 4/5.5, which is one of the unique parts of the property. The upper unit is like an entire mother-in-law suite that can have a completely separate entrance and it can be rented out maybe for $2,000. This was the other one I mentioned a while back that was like a pseudo triplex. Like it's not actually a triplex, but you could separate into 3 separate things.

It also works good, you guys, for rent-to-own because the family's combining and that makes a lot of sense in our world.

Yep. Okay.

How detailed did you and Zach get with her about waiting for equity or any methods? I wasn't here.

So we talked briefly over lease purchase, just like waiting a period of time. And I think he probably said 48 months to wait for her equity. He just kind of danced around the number of, let's say we got you to $1.9 million. And we lock in your equity, which is the difference of the $385,000 and $1.9 million, and you'd get that in 4 years. What is that number so I can write it?

Gary? 515? 3— We got it, Jeremy. Yeah, sorry. You're kind of shortening your name. I'm tired. What's that, Anthony? That's Cody. Yeah, yeah, yeah.

1.515.

All right.

That was the lease purchase that was discussed.

Which was the rent comps.

That's where it's hard. It's a mountain property. I'd say from what I found, things around there that were 4 bedrooms and up, it was at least $5K. I would say because of the acreage and beauty, $5.5 to $6.1 was what I was saying.

What?

Okay, why don't we say 52? We okay with that?

That's conservative, but that would be fine. Okay.

I'd rather be conservative, especially in this size house. You're going to go out and then Nick will bring it down. It doesn't sell. What is someone do a loan calculation? 7% jumbo. I think you said earlier today, if somebody We're going to put down 400 grand. So what's 1 point— what's $1.5 million at 7%, 30 years? I'm curious.

Okay.

Mark the owner, probably 30%. I want 80% of $2 million.

Yeah, it's about $10 grand on the month.

Yeah.

And then 7 times.

I'm just—

that's only for us to know it, right? A mortgage is Potentially, give or take nine grand. That's confirmed. All right. I'm asking that because this is a little different buyer, right? At this price range, not as easy. Okay, Jeremiah. Anything else in the numbers that we need to know or that you talked about? Because it's easy to structure a lease purchase.

So it's minor, but they there is a pool in the. This in the property and it has an attached bathroom. It could be potentially converted. But again, that's equity that—

or pool is enclosed.

It's enclosed. It has skylights. So like open windows on the above, not open windows, but windows.

So every day and every night when you wake up, you smell chlorine.

That's so powerful.

That's sweet. All right. So you want to do like maybe the sandwich and the Is it AO right now?

Yeah, that'd be great.

Okay. Because the sandwich is real simple. You guys have the forms in the document module, which I think is the last mod at QLS. It has a section. We don't talk price. It has a section for you to say— it's Section 13, I think— on me for 36 months, We're going to pay off the underlying mortgage listed in Section 8, which will be this mortgage, and we're going to— there's a blank line that says we're going to pay blank equity. So you put in the $1,515 there contingent upon a buyer. That's your lease purchase agreement. On before 36 months. On before 36 months. So speaking to the seller, Jeremiah.

Yep.

Because her mortgage is so high, I thought at first because of this, you'd give her something monthly, but because it's so high, she would get— you'd be paying the mortgage. That's it. Or the tenant buyer would if it's an AO. But in the sandwich lease, in your lease, you'll say this is the payment in your lease purchase, rather.

Yeah.

Everybody tracking? The lease purchase is not a difficult conversation. You're going to make a contingent upon a buyer because of the size. And if it's not selling in 60 or so days, Nick's going to probably call them and have a discussion like Rick did recently. Happens all the time. They come lower.

Is this a primary? No, she's already moved out. It was primary.

But how long has she been out, though?

6 months.

At least 7 or 8 months now. Yeah, probably. Probably 8 months.

Okay, so you don't want to do more than 36 months is my point. You get that, right? So she doesn't lose her exclusion.

Yeah, she's probably already lost. Well, and she only gets 75%. She rents it out a quarter of it throughout her time there. So yeah, there's—

Yeah, but you're saying she might have already lost it.

She didn't.

She's only been gone 7 or 8 months, I thought.

True. But how would 36 months get her there? We need like 26 months or 20— what, 28 months?

No, no, you got to be there. Oh yeah, I get you. Yes, because you got to be there 2 out of 5.

Yeah. Okay.

So then you have this discussion with her on before 36 months. But if we're hitting up against whatever it'd be, the 25th month, we might have to change the sub to just to get it closed out. Stop the clock. Yeah, right. Pivot. So your buyer you're looking for is most definitely— when the screening comes back, it should say 12 to 18 or 18 to 24, which is common. What's the difference then? The difference is you got to keep your finger on their pulse. Jeremiah, if this goes, you got to keep on the buyers, check-ins so they don't go late and make that— it makes your life harder here. So whether you have filled out a lease purchase in the past or not, I would fill it out. Take a crack at it. There's a video, guys, that explains how to fill the agreements out and then get it to Rusty and Mike in Slack as far as this one. But that's just for you to learn it. In the meantime, we'll send her an email that says this, right? And then I'll show you in the AO that you can give her. Okay?

Okay. I did just send a contract, a lease purchase contract to a gentleman, so I have done an example of it.

Right.

All right, awesome. So this is the sandwich lease. In the email, remember this morning we did Janice's, you guys? Hey, yo.

Yep.

The email is going to look just like that one. This is different numbers. And again, it's just for sample. And your form you send her, if she says yes to this one, says in bold print, this is just hypothetical. I don't know yet. I got to bring it to market. In the email, you'll say, You're looking for 19. She was on as high as 22.

She was.

So in this sample only, you'll say 21 on the open market. For a down payment for this sample, I would use Certainly not necessarily all upfront, but in this price range, if someone doesn't have this kind of money, they're not getting into the house. $300,000.

So, Mrs.

Seller, at financing, the buyer is going to owe you $1.8 million, right? But we'll see if this math works. But we split the down payment, so you already got $150,000. So you're at $1,950,000. We got better than your minimum you're looking for of $1,900,000. Plus you got all the cash flow here. Call it $900. You said that was conservative.

Yeah.

And a box from— call it 18 months. What's that come to you guys? $900 times 18. This is what he's going to tell the seller.

$16,200.

$16,200. Okay. So she made $1,966,200 in this example. It's going to go up or down depending on the market, but it's just a sample to show her how an AO works. That's all this is.

Okay.

Any explanation in the email? I think you've done these, but just for these guys to know. We're going to procure the same buyer we would in this option. The difference is we're going to package it, show you the prescreening, let you have the final say. In my call yesterday, you'll hear I said that to the guy. He asked if he can have a say in it. I said, yeah, we're going to tell you from our experience what we think, but you have to say yay or nay. The builder said that. And that— going to own it. You're going to deal with this buyer. I don't know if you can see these numbers, but if you can't, maybe Rick can Slack them to you. Can you see numbers?

Yeah. Ken?

Where's 1? It went from 1.9 to 1.8. Where did the 1.8 come from?

She wanted 1.9, right?

Yeah.

We went on the market for the sale price, 2.1.

Okay. Oh, minus—

A buyer put down, a buyer put down $300 grand.

Yeah.

So now financing, they owe her $180,000 if my math is correct.

No, you're correct. I just missed the word.

But she also got half of the $300,000. So I added that back in and she netted this before cash flow.

Yeah, perfect. Thank you.

It's technically still her primary. So unless she's cheating with her accountant, she's not going to appreciate it yet, to the best of my knowledge. So she has these 2 income streams. I mean, these 2 numbers. Questions, you guys?

That kind of loses me a little bit.

Okay, go ahead.

Because, you know, they get $150,000 down payment. Does that bring it down to $175,000?

Well, the total down is $300,000 from the buyer, but Jeremiah is keeping $150,000 and the seller is keeping $150,000. Yeah, that's how he gets paid. So add $150,000 back into what they will owe at financing.

Actually, saying is they give you $300,000 down, not one tip.

They gave it— they gave us— they gave the buyer— gave the seller $300,000 down. So they owe the seller when they get their mortgage, $180,000. They're going to get credit for the $300,000. So they only owe $180,000. Where did that cash go? No one cares. But where did that cash go? $150,000 to him, $150,000 to her. Mortgage company needs to see what? Show me the sourcing on the $300,000 that it wasn't a gift from Auntie Sally. With your money, right? It's just like any other loan. They have to show sourcing, and the seller will show that coming in. Where that went is its own business. Does that make more sense or no?

Yeah.

Okay.

Yes.

Cool. The question is, why is this house not selling?

On the open market?

If you looked at the stuff too, Burton, that's Elite Burton, say, sandwich, Yep. So that's— don't we get concerned on our risk side? Because it's already dropped $300 million. Jeremiah said it's been up 8 months since—

Well, where's the risk if it's continued upon a buyout? I don't know.

So I was asking. Oh, you mean on the sandwich side?

Yeah, you can make continued upon a buyout. All these agreements are pre-built with that in there. You can take— you can not initial it.

Yep.

Yep. I mean, Jeremiah, at your stage, I wouldn't be afraid of that. If you make a contingent upon a buyer and you put up half of it in the bank, I got— it's okay. If the house is like, like good shape.

Yeah, I know it's been updated almost top to bottom. The only issue I would say is like the upper unit and the basement are kind of a little excluded from the main level. So if it was like a family, they might feel like, oh, why is this not all together? But, you know, You can access that. It'll show up.

That'll be protecting you by the fire contingency though. That's okay. I meant, are you comfortable? Do you like the house?

Yeah, no, the house is fine.

It doesn't give you the heebie-jeebies. You like it, you like the area, then I wouldn't be afraid of it. But if you wanted to, so if you can see if you can get a slam dunk and get a check and not worry about it and it's going to keep you up, then go with the AO. As I told you guys, my first 12 were AOs.

Yeah, the only negative is it's mountain property, so it requires like no maintenance and it's a little bit farther away from the city. Like not, but not that far. It's just like 5 to 10 minutes. It's not too far away.

All Chad's were mountain properties. He had good luck with them. He had a headache at the end and he just resold it. Mike had a mountain property and when the helicopters flew over from the state, which the tenant buyer might forget that happens, they found an illegal marijuana plant. Mike still had to do a lot of work. We resold it and he had 6 figures still, but it was a headache. And Rusty's had that. So I get mountain properties can be tough. You got to, you got to be game for inspecting and stuff. But if you're not, then do the AO. Is she local? I'm sorry if you already told us.

Yeah, she's not too— I don't know where she is, but she's local. Okay.

So you could say, look, I'll— I'm here for you for Q&A, but, you know, you're going to deal directly with the buyer. They're going to pay you. We happen to have a service They can escrow the money for you and pay you. And so we can automate this, but it'd be you. You set the expectations.

Got it.

We didn't talk about that yet, but Prosperity.io, Prosperity.io, those of you that own properties can use it. You don't have to be in the community. We bought it out. We were utilizing it as part owners and then we bought it out in October. So we own it. It markets all your properties, the service. Then once you get a buyer in it, it collects the rent from on a portal from the tenant buyer, and then it disperses for you the splits to you and us, and it pays the mortgage. You don't have to have a bookkeeper like we did for so many years. Is that like a monthly charge or is it a— Yeah, I think it's a monthly per house. And Nick, you could ask Sue what it is. Sue runs it right here since we bought it. Can you ask Sue? It's $100, $75 or $100 a month per property. Yeah, but it doesn't take a percentage like a property. No, no, no.

It's just a monthly.

It was an idea from a student brought to us. So then he partnered with us and then we bought him out. That's for every deal. Well, how do you— if we got that number right, but you can ask him on the way out. And he's got nothing to do with the community. Go ahead, Jeremiah.

Is sandwich essentially the same as a lease purchase? She's going to hold title and mortgage, Yeah, sorry, it's a lease purchase.

I'm using— yeah, it's a lease purchase.

Okay, got it.

Yep. You could do sub-to-owner financing. I don't know. I'm suggesting it maybe at your stage you do one of these.

Yeah.

Get a win.

Yep. Makes sense.

If you're thinking of yourself the best chance of selling it to, I wouldn't mark it up like a lot.

Yeah, Nick will hit you when— because you haven't even looked at the numbers on this at all. But okay, questions on this, you guys, besides the few that came out already? Just had a, I guess, a tangent question. You're talking about mountain properties.

Yeah.

Making you think of, in a worst-case scenario, say a hurricane hits your house and destroys it.

Yep.

Mount— I think I always say avalanche. Avalanche.

Yeah, there's a clause that the—

Nashville, that would probably say, yeah.

Yeah.

Florida. There's a clause in the agreement that I believe from memory, because that hasn't happened to us. We've had fires and all kinds of weird stuff, but I think it gives them the out to— because you get insurance money. Yes. To stage, you get the deposit back, or to wait for a rebuild or something like that. I think it's in all the agreements.

Got it.

But so, so you said, ultimately, since the mortgage isn't in your name, in a terrible worst-case scenario, you know, at the end of the day, you're not liable. You know, in a lease purchase, you can't do anything with the insurance. Some companies will let you, but where I'm going is sub-2s, because the mortgage is not in your name, but you own it. You are on insurance, so the check's going to come in both your names.

You change it.

There's a video, How to Properly Insure a Sub-2, that's super important if you do sub-2s. Watch it 10 times and then properly insure it so that happens. Sorry, Julie, you asked something.

Oh, I was going to ask something a little bit off subject.

That's okay.

Apartment, like if you're leasing that out, you know, to a buyer, can they lease the in-law unit to somebody else?

Yeah, good question.

Okay.

They're not allowed to sublet and they're agreeing with us, but we've done this a few times. Nick and I and Zach had a property since cashed out where it was a house and then a garage and above the garage an apartment. It was a buddy and he said, can you leave him there? It's a guy who lost one of his kids and passed away in this house. He's like, I don't want to do that. Can you leave my buddy in the garage? What we did, we said, we're going to keep rent in the garage. We're going to collect it. And hypothetically, I forget the exact terms with him, was you have— if you stay current for 2 years and you get your deposit up to X amount, we'll let you take that rent in for your income. But that was the carrot. We took it until that point. And you could do that with 2 families.

And just find somebody to lease the apartments.

We typically don't unless it's that kind of carrot. After they get their financing, which is their incentive, of course they can, right?

Right.

That's their incentive. But that guy, we gave, we gave him the right to rent after he proved himself.

I was going to say, let me say that to investors calling us, we're not looking to sell to an investor looking to use this property to make money like an Airbnb or like, oh no, I'm going to rent them the property and then use it as an Airbnb.

Yeah, that's right. We get those calls.

He's looking to consolidate. Which is what the marketing will hit. You get a lot of those. You get a lot of families that are looking to consolidate, referring all down payments and incomes under one roof.

Yeah.

And it's not against a stranger to help you cover your nut.

I said if it's family, I don't— Yeah, exactly. I think you're into family.

Yeah.

Yeah.

You could pay each other. I don't care.

But it's against the lease for the non— Yes.

Until they own.

Until you don't have minutes, then do whatever you want. Yeah, all the power to you. You guys, this make sense, these different options? We didn't do out the paydays. Obviously for this it's $150,000, for this it'd be higher. I can do it if you want, similar to this morning. Do we know the principal paydown?

Yeah, it's like $800,000.

Okay, it's not huge. Uh, you want to do the paydays on this? So you guys good?

Vote.

I got one vote. Means I'll do it. Payday 1. Well, let's just stick with the 2-1. Okay. Like I said, we don't know, but let's just— so you guys get the math. Payday 1, then $300. Going to make it wonky probably at the end. Payday 2 is— we already did it out, actually. We only did 18 months here, so we can stay conservative if you want because we're trying to get her out of it to not lose her exclusion. Yeah, payday 2 is only $1,602. Again, sub-2 would be different. You could drag this out. I'm just being conservative here. Payday 3.

If the same timeframe, it'd be $800 times The 16 or 18 months. So it's 14.

Yeah, Derek, I'm sorry. No, I thought it was 900. So that's 900 to 16. Yeah, we— it was at 900 times 18. 16 too. Yeah.

Yeah, I was saying payday 3, principal paid out.

Payday 3.

Sorry.

I got you.

Okay, so Mark, first of all, premium. Price premium, 200 is 200.

Yep.

Um, you're saying principal paydown, how much is it?

800 over 18 months. Yeah, 800 would be $14,400.

Yeah, $14,400. And we got to give credit for the down payment. We are losing whiteboard space. What's that come to? Minus 86, 85, 86. Okay, so we got it. All right, let's just say 86. So what's 81, 82, and 83? $300,000, $16,200 minus 86, $230-ish. All right. So here's a decision for Jeremiah, too. Aside from what's best for the seller, does he take $150,000 and split, or does he try to hang out and get up around $230,000? I— yeah, I agree. What was it? Take $150,000. I kind of think Delaney will be happier, too, but— 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 a decade doing exactly that. You think you're dead set on that and you also know that it's more profitable and that she can handle it. Maybe just tell her this is your best option.

Okay.

And be honest. This is why I say to sellers, you guys, I know we just figured 18 months here, but if I assign this to you, I'm telling you, we're going to look for a buyer that says 12 to 18 or 18 to 20. You know, you're going to know. As long as they don't fail. In this one, we're conservative investors, so I have to put a longer date. So I have to say, I want it before 36 or 25 months. I can't keep it as tight because I don't want you disappointed in me if it doesn't cash out. I need time to do something with it. That's why I tell— so that's the differences here too. Tighter timeframe, more money for her.

Yeah, yeah.

More definitive tighter timeframe than that. And that's just being honest with them. By the way, when you say that line to people, I think that came from someone we went to, maybe Eddie, to be— we're conservative investors. They like, they appreciate that. So I got to build in a buffer here. I don't want to disappoint. I don't want to overpromise. Got it.

Perfect. Yeah, I'll drop an email with both those ideas in there. That's perfect.

Right. I think we hit all 5 plus the 2 extra owned properties in the room today. That's good.