Chris Prefontaine walks through structuring an owner-financed deal on a $319,000 house. The seller needs a 5-year solution, so they propose $1,100-$1,400 monthly payments against comparable rents of $2,150-$2,450 and annual taxes of $4,187. The framework covers benchmarking against mortgage rates, calculating the seller's net cash flow, and positioning the offer against competing proposals.
Chapters
Hey, this is Chris Prefontaine. Welcome to this week's Deal Structure Sunday. Make sure you guys are subscribed to this. We've got, I don't know how many in there now, over 400. If you just hung out in this area, you'd get your skill set piece of your biz down. Anyway, this week in the Deal Structure Sunday, I'm going to beam you into a live coaching session I did with some High 6 Associates. That's our higher level program. And this particular gentleman's from New Jersey. And what we do in this, it's important for you to see this because He got a lead, he went on an appointment and had one of our coaches call in. One of our coaches is sidetracked this week with some personal issues, so he brought the lead to one of the High 6 calls. He can jump on any one of them, and there's 4 a week, not mentioning the group calls. These are just the private High 6 calls, and we walked him through, okay, where are you and where do you go next? What questions do you ask? What information do you gather? So enjoy this, this live coaching session. I'm sure you'll get a nugget or two out of it. Number 2, I invite you to become one of our new apprentices if you haven't done that yet. You definitely want to take a peek at what we're doing with this. We are changing the support mechanism in the education space in real estate. There is no one, no one— I can emphatically say this right across the board with certainty— providing the support we are. Check out 3paydaysapprentice.com. The number 3, paydaysapprentice.com. You're gonna love it. Again, be sure to subscribe, guys, so you catch all our Q&A Thursday, Motivation Monday, and Deal Structure Sunday. Until then, hope to see you in the community as a new apprentice.
Yeah, you guys, you see my lead sheet? Yes. Yes. Okay. All right. So this, it's an appointment I was at on Monday.
Okay.
And I had a— I called in with Rick, you know, from there. Basically, I have this fellow owns the house. He's asking $319,000. He's— he has not had it for a long time. Uh, he's done a little work to it. He thought he was gonna hold on to it and rent it out, but then, uh, his wife has some medical issues and he just doesn't want to become a landlord at the same time as dealing with the medical issues.
Okay.
Um, uh, he, he owns it free and clear. He did not give us numbers of what he was looking— would want on a monthly basis because he said, I hadn't even thought about that. Uh, so he's asking us for a proposal.
When Rick talked to him, did he get at least how long it'd go or no?
Uh, 5 years. He would do 5 years.
Okay, sweet. So what's the question on this one?
Uh, what do I propose to him?
Um, okay. Um, have you looked— you've watched, I'm sure, over the years the How Do You Figure Out the Owner Financing Payments on Free and Clear video, right?
Uh, so I have, but not recently, so I'm, I'm open to a refresher.
Okay, so watch that video in addition to this, right? All you guys. Um, because although it's older, it doesn't matter. You want to know for the sake of negotiating with him what a mortgage would be on this for, say, a 5% down buyer. So run a mortgage, today's rates, $300 grand, and use that number because rates are high. It's to our favor to say, okay, now I got to create a spread and you got to be below that. So that's the number you start at for 5 years.
Okay.
Principal only. I'm being very broad.
Right.
Because you know he'll go 5 years.
This—
it's almost like as long as you create a spread, what do you care? Um, well, let's do it. Who has a mortgage calculator? What's $300 grand at today's rates?
Somebody.
Anybody?
I'll try to pull something up. I'm just on a slow computer.
You can do it all by yourself, Avi. No one's chiming in here.
No one's helping?
$300,000. Today's rates. I don't even need that.
Uh, 5.5, 6?
Uh, maybe with great credit, sure.
$300,000, 30 or more, 5.5, $1,700 a month. Okay.
So, Avi, I would think, especially at your early stage, that you'd be okay with anything over $300,000. It's kind of our average. So I would start at somewhere in a house at $300,000-ish. I would start somewhere around $1,100 or $1,200.
Okay.
Give you a little buffer there. And I would never, you guys know, give them the exact number. I'd say 60 months, $1,178 per month, principal only. And then say 72 months, you know, give them a touch more a month.
Okay.
Some weird— What's the taxes? Can we find that out?
Um, oh, I didn't write it down there. Uh, then not a lot. I have written down that, and then do you know rent comps? Yeah, so the taxes are $4,187 for the year, so what's about $350 a month?
Yeah.
Uh, I don't have his insurance, but you know, how much can that be? It's not a big house.
Yeah.
And rent comps? I didn't look at them. The guy told me, uh, probably about $2,150 to $2,450, and I, I don't think he's BSing me. I, I think he's probably not.
Yeah, it's probably spot on. Well, Avi, we're already looking pretty good because look at what we just found out. If you round the taxes up to $400, you got— and he rented for $2,200, he's netting $1,800 before any maintenance and before insurance and before, like, So he's netting probably what we're saying a homeowner would have to pay to be here.
Right.
Somewhere between $1,600 and $1,700. I'm just ballparking. So for you to go in and say, well, homeowner's going to pay around $1,700, I got to create a spread here. That's where I come up with that number. If he asks you where you come up with the number, I don't think starting high $1,100s and going up as high as $1,300 would hurt, or $1,400. It would still make this deal work.
Okay, okay. And I'll just give you one, one other piece of information is he, he had several other offers. He said they were all creative offers of some sort. Uh, the one of them actually put something in writing, but he said he didn't trust them. And Rick Hammonds, yeah, Rick immediately dropped that, you know, did that. Before, the guy said he didn't trust it, but when he said he had a few other offers, Rick immediately said, well, are any of them sort of, you know, accredited investors? And he brought that out and that was fine. After my call with Rick, as I was talking with the guy a little more, it came out that the one offer he got, the people offered— he was asking $319,000. He said they came in at like $369,000. They were going to— it sounded like they were trying to do a lease purchase starting at $1,400 a month. Going up to like $1,400 a month the first year, then like $1,600 or $1,800 a month, then like going up each year for 3 years with not a lot of money down. He said, basically he said, I felt like I'd be holding the bag at the end of the term.
How does this house comp out?
You know, I, I couldn't really find any good comps.
Well, if you can't find him as Grilta, then there aren't many good comps.
Yeah, well, I'm not— it's not my, um— yeah, there aren't a lot of good comps, but it's also not my— I don't have that MLS. It's not my area.
Well, yeah, but you get what you're looking at, I'm saying.
Yeah, I understand.
Um, okay. I mean, I, I I would block out whatever he says is on the table. We don't really care, right? Right. No, to Rick's conversation with him, we know we can get it done. This is all we do. We specialize in it. Here's our deal. You won't have a headache and you will be cashed out and you're going to net this in your pocket every month because nothing's offsetting it.
Yeah. Okay.
Let's start with that. Rick's around now, guys. We jumped on because Rick's mother's going through all kinds of stuff in the hospital, but he called me on his way home from the hospital today. He's going back up Friday. Provided she does good, but he's around. He's going to be on calls this afternoon. If you have if anyone else calls him, he's he's doing them.
Okay. All right. So I mean, I was hoping to get on the phone with Rick and the seller, but you know, I'll just call the seller direct and he's he's he's in the mix today.
He's he's doing stuff today. You can check with him. Tell him we talked going on holiday and see if he can stay with that credibility.
Right exactly. This way, if I you know, if I'm off the next couple of days, he can this guy can reach out to Rick or. Yep.
And Rick can lean on me if he's— whatever, because he doesn't know which way it's gonna go with his mom.
I understand. Okay.
All right, good stuff. So you have like— you have 2 options. You could send this guy and then you could follow up with a phone call.
