Chris Prefontaine explains how to handle high-end properties around $1.5 million using two deal structures: assigning out directly to a buyer, or assigning the purchase agreement after negotiating with the seller. He recommends the 3-payday exit model for cash flow and setting aside safety money from the first payday.
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All right, welcome to another Q&A Thursday. I actually had one of my coaches message me this morning and say, hey, I got one of my own deals, it's a higher-end house. This particular coach is in a high-end area, so a couple things come through people's minds when they have higher-end, and so I want to kind of set this up for you, and then I'm going to tell you his question. Immediately, the knee-jerk is, Uh-oh, high-end, big monthly mortgage payment. I don't know if I want to take this on as a sub-to or an owner financing, even if it was free and clear. Because immediately, again, they worry about the, the, uh-oh, what if I had a tenant buyer in there, which is how we exit most of our properties, and then they have a default? It actually came up on a High 6 coaching call yesterday as well. So here's my answer to, or my comment on that, just to give you some kind of background, and then his direct, more detailed, in the weeds questions. Uh, today about the agreements in the different options we have. So first and foremost, I said to both the student yesterday and, and the coach today, don't get caught up in the weeds of, uh-oh, it's a large monthly payment. Don't, because remember, you're not taking on that payment until and unless you get a buyer. Our agreements are contingent upon buyers. Are there exceptions? Of course. I'm just talking generalities here. That's number one. Number 2, when you get your payday one in, Which on a million-dollar house— I think yesterday the house was $1.5 million. So I said, look, you're not putting a buyer in that house without $150 grand. And over time, because it's probably going to be a jumbo loan in any area, you're going to want to get them up to 20%. So if you're getting $150 grand up front, $150 grand over time, let's assume the worst happened in the 2 to 10% default kind of range. The buyer defaulted. You didn't get the second $150,000. You got $150,000. What is the most prudent— what is the most— Uh, uh, what's the smartest thing to do as a real estate investor? Take at least half of that, $75,000, and stick it in the bank. Why? Well, let's just say the payment's $5,000 or $6,000. A month of payments is $70,000— sorry, a year of payments is $70-something grand. The way we exit properties, or even if you had to pivot conventional, it's next to impossible— I'll never say impossible— if you'd be stuck with that. You get the money in the bank. Okay, so just be smart about what you do with your payday 1s, 2s, and 3s. Follow Dave Richter's Profits First for Real Estate Investors, which originated with Mike Michalowicz's Profits First. Make sure you're on this stuff, and if you are, you won't worry about it. Okay, so the next question came. He said, Chris, if I'm gonna do an AO, which is an assign-out— if you're not familiar with our deal structures, please check out the Deal Structure Sunday channel, right? Or come to the Wicked Smart Sit-Downs weekly. We have them. We've been running these for years, 4 o'clock weekly on Thursdays. Come to those and you can get— learn more about the techniques. But the AO exit is the only exit that does not have our trademarked 3 paydays. So not my favorite, but has a place in a deal where either it's high-end and you don't want to do it and you don't— doesn't matter what I just said to you for an explanation, or the owner wants all the money monthly, doesn't want to give up any of the spread, so you can't be in the middle, uh, or you know the price is pushing it on monthly end or sale price and you just— there's just no room in the deal for you. So you're going to do an assign out. That's what an AO is. So he said to me, what's the difference between an assign out and a— he said, I've heard you do higher end, Chris, where you do a purchase and sales agreement and you assign that. So here's the differences. If you have questions, please send me a note to— actually send me a note directly. It's okay. Just say in the subject line, I heard you on a Q&A Thursday. Please explain. I'll know it's a personal message. I don't check all the emails, but I get all the emails that come in that are addressed to me. Okay, so an AO, you're gonna— just like every other rent-to-own buyer situation, you're gonna procure the buyer. There's a checklist in our Quantum Leap System QLS home study course, the entire checklist, all these agreements, everything. You're gonna procure that buyer using the checklist. You're gonna go through the buyer's meeting. You're gonna get it funded the proper way. Then there's 2 simple pieces of paper that allow you to assign that package and that buyer So you take in the buyer and you take in the buyer package you just signed, and you're signing it back to the seller. That's an assign out, an AO. Okay, there's a consent form and a general release form that does it nice and clean so the buyer and the seller know that you're out, and then they release you. Okay, so with an AO, you're procuring the buyer and assigning the buyer to the seller. All right, the other way he was asking me is this: there's a simple way to do a, uh, A higher-end home, especially if it's free and clear, and the owner wants owner— the owner's okay with owner financing. So you say, okay, what terms do you want? Let's, let's mark it up. You want 1.5? Okay, great. You want $6,000 a month? Okay, great. Is it— is there interest in there? Is it just principal? Remember, if you're gonna not be in this deal, it's okay if there's interest baked in, as long as there— it works in the open market, you can sell it. How that works then is you have a purchase and sales agreement, right? You're going to market with this. Guys, sorry, my screen froze and I'm gonna have to keep going. And sorry for— you have to edit. You're gonna procure the higher-end buyer. You're gonna procure the buyer based on the terms in the purchase and sales agreement, okay? And once that is, you know, they're vetted, they go through our process same as a tenant buyer would, you're gonna assign your purchase and sales agreement to this buyer. A little different here. So the buyer steps into your shoes. They now own, so to speak, that purchase and sales agreement. Okay? You assigned your P&S to that buyer. That buyer steps in your shoes, closes the deal with the seller. Okay? So a little bit different than the AO works. Now where do you come in? You've already negotiated with the seller. The seller, for example, said, I want $1.5 million, and you bring it to market for $1.6 million, $1.650 million, $1.7 million, whatever you guys decide. When the deposit comes in, That's how you get paid. Now, you may negotiate with the seller, hey, I'm gonna take half that deposit and half the additional deposit if there's one scheduled. Whatever you negotiate, I'll help you with that, or our team of coaches or community will help you with that. But just, that's the concept. AO, procure buyer, assign buyer to seller. Purchase and sales agreement, sign up the purchase and sales agreement with the seller yourself, find buyer, assign your purchase and sales agreement to that buyer, buyer steps in your shoes and closes the deal with the seller. Okay. Hope that helps. Again, I chucked a lot out at you guys. Wicked Smart Sit Down is every Thursday at 4 o'clock. Come see us. You can bring deals. You can just listen in. It's free, and we provide that for you guys to stay plugged in. Our Quantum Leap System—if you've been watching these videos, even if you're new and you do not have the QLS Home Study Program—you're missing out because there simply is no other program to date that has the amount of education, the amount of detail. the amount of, um, uh, context and background on all these deals to enable you to, to do deals on your own. There just isn't. People say, well, I took this course and they left out half the stuff and they wanted me to buy this other course. That's not us. There are about 11 modules in the QLS Home Study Program, and it goes from definitions to your metrics to how you set up a 3-year plan to every resource you need for lead generation and everything else you need to run your business, just like we run our business here. And as of the day of this filming, I'll tell you that we're going through like the 4th or 5th iteration, update, revision of QLS Home Study right now. We're tearing apart some old stuff, we're leaving new— some— we're putting some new stuff in, we're leaving some older things that are still pertinent. We're updating based on the times right now in the economy. This is an ever-evolving, living, breathing course. Again, you won't find it on the open market anywhere from anyone else. And that's a pretty bold statement, I know. Check it out, it's a money-back guarantee. Just go to getqls.com, getqls.com, or of course smartrealestatecoach.com. You'll find it on the, um, uh, right across the top right tab. Okay, make it a great week. Look forward to seeing you guys at one of our next events. We have the Wicked Smart Summit in March, that's a virtual this year, and we have the QLS Live event, qlslive.com, in September. Look forward to seeing you at both.
