What to Know Before Signing a Tenant Buyer

I think the first question, Brad, was, tell me if I'm right, qualification process. Was that the beginning of the question?

What are you looking for in a buyer when obviously they can't qualify for a mortgage? So having never done this, that raises a lot of red flags.

Because you're conventional. Okay, I own 2 properties, they own 2. So I own 2 properties, now I'm going to put that person in. Right. And so can you address that like you would? Well, he is a seller, but like you would a seller. I think the first question, Brad, was— tell me if I'm right— sort of the qualification process. Was that the beginning of the question?

Yeah. Just what are you looking for in a buyer? And obviously they can't qualify for a mortgage. So having never done this, that raises a lot of red flags.

We have a step which once we set up, once we determine that, yes, okay, this person has a down payment, they have an income, they may be a fit for our program. We would schedule a buyer's meeting, and once we schedule that, that's when we get them over to screen the tenant with their credit screening, and they're going to do a full screening. So credit, criminal, sexual harassment. More importantly, they're going to do their mortgage readiness date. It's how long it's going to take them After they've done the credit repair, the credit enhancement. And that's what, that's what my dad was alluding to with 18. You get back from them usually like 12 to 18 months, 18 or 24 months. And then very few, it's probably what, 10% of the time? Higher than that. 24 to 30 or 30 to 36. But that That's in the process where we get them over to the credit, credit screening, the tenant screening rep. So then the ones that actually do what we're asking them to prior to the buyer's meeting, we know, okay, we have someone serious here. We ask them, we're going to need this in order to make a decision. So it behooves you to go ahead and do this prior to the buyer's meeting. Even saying that, there are still a lot of buyers that don't do it. Because like, oh, well, you know, I want to meet you. And the ones that do it, no questions asked, those are usually the ones I end up working with.

Often.

And we've seen it all, you guys. So there's an emotional part that I could tell you the biggest mistake with associates, and you're already shaking your head, is the emotional part of, you know, but they told me this and I know they only have this step and they get too emotionally in it. And not black and white. And it's a headache in about 13 months. So whatever it's going to be.

Every—

as recent as earlier this week, I had to— Rick and I had a conversation and Rick said, well, no, they're, they're, they're going to be selling the mobile homes so they don't have their down payment.

That's your buyer. That's who's buying. But Rick's back.

That's where they get their down payment. So what do we do in that situation? I don't care their drama, what they have going on.

Right.

Tell us when it's done.

They're going to do it. You know what I'm saying? We can't take the house off the market considering you selling your mobile.

Yeah.

No, you guys, this wacky stuff comes out of these buyers.

This is the one that the buyers left. It looks like original buyers left.

They're gone. They're ghosts. Yeah. Surprise, surprise.

And because we only $600,000 To clean it out, additional $800 for professional cleaning. So $200 in plumbing work.

Just so you know, no one is going to cry when you tell them the end result. But yeah, it's dead.

But it's too bad they want—

yeah, yeah.

You're already getting blown up with activities, right?

Yeah, I have had over 70 inquiries in a couple of weeks.

But the fact is, Rick didn't need the headache. Even though it's a little more profitable, you didn't need the headache.

No, we never want to. We never want our buyers to fail. Like there are a lot of people that teach it from the stage that oh great, say if they're not able to do it, have a have a party celebrate.

It's actually most do it again. Other people in our space will say publicly they don't care if they catch up. They go on podcasts to say it publicly, which kills me that they're even saying it publicly. So their agreements might protect them, but morally nothing really sticks, right?

Yeah, I was thinking also to take. I was truly upset that it didn't work out for them.

Yeah. Because you had the other buyer was in tears and like—

They weren't happy. I mean, they just couldn't afford the mortgage.

No, I meant the one that was happy, the one that cashed out.

Oh, yeah.

And her mom, I think.

Yeah. She walked in with $70,000 or $80,000 equity. And she never thought she'd be able to own a home.

Because of the appreciation over the time.

Appreciation plus what she had put down on the property.

Remember, your conversation is this, Brad. Hey, Mr. and Mrs. Tenant Buyer, we're not landlords. You're not a tenant. You're going to behave like, pay for things like, appreciate or not, lose market, like a buyer would the day we sign the paperwork. Not closing, it's not closing, but the day we sign. You're a buyer. So When someone calls, they can't pay. For example, as a bank, we just have an open conversation. Is the bank really going to care that, you know, you can't get it over and you got to do that? No, you got to pay your bill just like your mortgage or you're already failing.

That's why I have zero, like, emotion in it. After someone— when someone gives me, oh, well, I can't do it and I'm in the hospital and this, this, that, like, it doesn't matter. And you can't imagine the excuses. You've saved that.

You've heard some of them.

It's very simple.

All that buyer-related stuff that we don't get often on the end.

Once you have a tenant buyer in place, how often are you actually in touch with them?

That's good.

If at all.

Yeah. No, great question. So usually I tell them at the buyer's, or we've told them at the buyer's meeting, that you're making all your deposit payments on it and you're keeping up on the property. Truly, there's really no reason for me to want to do a walkthrough of the property. We have the right to with 24 to 48 hours notice. I make that clear to them at the buyer's meeting. However, chances are we're not going to be calling you to want to do a scheduled walkthrough if you're keeping up on all your rent payments, they're on time on the first, all your scheduled deposit payments, and you're keeping up on the property. The times when we become concerned is when those payments are falling behind, your rent payments and deposit payments, and then we are not getting communication from you as the buyer, I'll pretend you're the buyer. So if anything happens, like life-wise, and you're going to be late by a couple days on rent payments or any deposit payments, just make sure you're staying in communication with me because—

Sure.

When we stop getting payments and then we do a drive-by, we see the property's falling into disrepair, we're not getting communication, that's when we want to schedule a walk, do a property walkthrough.

So if they're paying, you're not really reaching out to them at all or talking to them?

It depends. Like, one of the things my dad mentioned that if it's a buyer that you have a vested interest Whereas, um, they like, you have to make sure they get to the finish line with the McFarkas thing.

That'd be a reason why you want to check in with them.

Yeah. Every, every 6 months, uh, make sure they're on top of it. And then you're reaching out to them if they fall off the credit repair at any time, which my credit team is going to let you know.

Okay.

So you hear from them on the updates too, especially if they drop.

Yeah. If they fall behind on their credit repair.

Yeah.

So, I mean, I don't even know that.

He tells you because they reach out, they have a portal. And if they're— if the client stops paying them and drops out, they let us know. And in their agreement, if, if that's part of the mortgage-ready plan that they have to stay on it, it says if they're off it, it defaults their purchase option. So now you have all that leverage.

And really, you got to think about it. We're setting up the agreement with the buyer at the beginning, just laying it all out. What they are—

you're going to—

you got to stay enrolled in credit repair. You got to take care of the home of maintenance, repair, and upkeep as if you owned it. So you're setting all the expectations early on in the process so that there's really no reason to, like, give them a call like once a month, like, hey, how's it going?

Right.

I think because if they're following what you laid out for them, they'll be successful.

We're at— how many cash-out 3s have you done already?

4.

4 3s already. And did you— did you— what'd you do with this? Did you call them or no?

No, nothing.

But they also didn't fall behind except for that one.

No, they didn't. No one fell behind.

And did they all cash out early? 2 out of 4 or what?

2 out of 4. The other ones cashed out on time.

Okay, so that sounds about right.

Yeah.

Nice mix.

So you mentioned like credit repair, so They're paying you on time. What if they're not paying the other ones on time?

The credit repair people?

Yeah.

Then that would screw up their mortgage-ready plan because part of it is they got to keep up with their payments.

Well, you know, I mean, do they— are they looking at their other credit at the same time or is it just you that they'll—

No, they don't need to. The program, the credit repair program monitors that.

Okay. That's what I'm asking.

Is that—

in fact, this one thing that you're paying $79 or $75 or $100 a month, Yeah.

And they're kept up to date as to what their credit score is.

Okay. So, yeah.

All right.

So that's what, that's what I was asking.

So they pay the credit card company. Sorry, the credit repair company do that though.

We don't. Yeah.

Right.

But I'm saying that that's a piece of that.

They're not looking at our payments. They're looking at the whole picture.

Yeah.

Right. That was because that was—

That's funny. So some buyers will get to the end, oh, I didn't qualify. They start to point fingers and then we hear from Paul Ritter, the owner, that, well, yeah, they went out and bought a new car. Oh yeah, they ran their credit card up. That's not part of the plan. There's always a, always a trail.

Do you get an early warning sign as to whether they're not going to be able to qualify?

Like 2 months ahead, 3 months ahead, or? Oh, varies.

Yeah, like every deal is different. Yeah, you get, you know, like, are you going to find somebody else? You're already set, but you can't do anything until they default. As long as they're keeping up on that rent payments, the rent payments, you know, as long as they keep up on the rent payments, Yeah, kick them out of the house. You guys, the warning signs are they're falling behind on their rent.

So what do you do if you got a 5-year deal from a seller and they put this tenant buyer in and their deal is 36 months?

That's not right. We would never do that. You would never schedule a rent-to-own buyer, 30, anything more than 24 months, because only one is 24 months. It's not real.

You got to keep control. Yeah, it's a check-in. Break for lunch check-in. 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. I had 3 or 4 deals set up for slides in case we didn't have enough of these. We have plenty today. I can sneak one in tomorrow if you want, but they were all Different weird deals, not standard cookie cutter. And two of them were one was my first sandwich ever in 2013. We just sold it because the rent-to-own buyers went in there, a couple, they were engaged, they split up. Okay, they did it again. Next couple split up. I'm like, this is like couples. But the second one and Drew, Drew was like, Chris, can I stay? My dad will help me pay. I literally never heard from Drew. And he went to Bank of America every month and deposited cash in the account all through COVID. Never missed it. This is again, 2013 or '14. He was the second one in. When he lost— when he stopped paying a deposit, when he lost his significant other, he knew he became a tenant.

Wait up.

Yeah, they broke up.

Yeah, they broke up. Well, he lost her.

They broke up.

So he goofed. He lost her. So he became a tenant and we went up on his rent every year or 2 years and tickled pink. And, you know, he's a tenant, he lost his initial deposit. And we just had another one down towards the Cape that did that. She was an attorney. She knew she was a tenant for like 2 and a half years. Then we ended up selling the house at a significant profit. They got paydays coming up like $200-something grand.

Yeah, actually, we got her in there before— we got her in that house before COVID believe it or not. And she was this close to owner financing it. We scheduled with the attorney twice and she just never called back.

Backed out of that. So red flag. I don't have money to pay your closing for an owner financing deal. So Nick and I were concerned. So last QLS event that some of you were at, we went there on the way to the QLS event because we were concerned. And we found out at that time that she had 2 or 3 adult kids We're back in. So that was like 5 cars there and 5 incomes and all this stuff. Like, oh my God. So anyway, long story short, I can show you the trail on this tomorrow if you want, but she's out and we resold it already and it's closing June 26th. Yeah. And we had it sold to her for 4-something. And on the open market, we got—

$580,000.

$580,000. It's a nice payday. Just as a business bubble done, essentially. No, we give it— we do a lot of stuff with realtors who feed us too. Each one of our states, we have great— Nick's got great relationship with these realtors to the point where they'll go do work for us to get it ready on their own dime. Just do it.

They get it ready.

It's crazy. Anyway, so there are a lot of nuances, Raj. And the punchline is there's so many pivots and it'll be profitable for us. It's a matter of how much more. It's a waste to pivot.

So we keep selling long term where the buyers come. You advertise it.

I'm doing Prosperity.

Before it was Prosperity, it was— we had access to it through AppFolio. So it's with AppFolio, which is you have to have 50+ doors to have that. We give the community access to them with a company called Prosperity, where you get access to hundreds of different websites. It's a portal that posts it out to And then we also encourage all of our, all of our associates, anyone really, to go and post on all different kinds of websites.

And who are the buyers, guys? The credit dings. I started my own business. I told you Judy's had healthy income. Rick, healthy income. The day after he left his job, he probably couldn't buy a car or a house, not for 2 years of seasoning in his new business.

Right.

So those are great buyers for us. Divorce, death. The house that came was a divorce. The house that I just talked about, my very first one, divorce. So they're all different. The house I just told you about that I kept that long started as a simple 3-year lease purchase. I turned it into a sub-2 and then kept it, whatever that is.

And the seller of the houses were okay with all the additions?

Well, the 3 years for the lease purchase with the woman, my very first lease purchase, I then called her and incentivized her to transfer the deed sub-to. I said, I'll pay the closing costs. You're going to have to at the end if I don't, and I'll send you $2,500. She was hurting for money. She said, okay, done. My attorney handled it and I took over the house. Now, she called like every 2 years, when are you going to get rid of this? I said, I'll let you know. Because there's no agreement when you buy it sub-to. The agreement is I'll let you know when I cash it out. There's an agreement if there's equity, but there was no equity in this. I got it for what it was worth. Which way back then was $180-something. And when we cashed out in January of this year or whatever month it was, I think it was down to $110,000 and we sold it for in the fours or high threes, man. Yeah, it was a big payday. Anyway, all kinds of cool nuances. Was the buyer snippets helpful, you guys? It just gives you another view, but go back and Go through Mod 9 again after Nick's explanations. It'll help you. Those of you that own properties, definitely go back and look at Mod 9 and you'll have questions.

Quick question on the— Nick, on the down payment installments that happen over time, do you usually have some kind of communication or standard way to reach out to them to say like, hey, can you pay? You know, let's say it's in 6 months. Do you like remind them like, hey, by the way, you have $30,000 due?

Not 6 months ahead of time, but We do. One of the things that— one of the items on the checklist, Jeremiah, for— and I'm talking this way because I know you're in the video. One of the things on the checklist is we have the ability to automate a text reminder. Just make sure you're never opting out. Rather, of those, Sue usually sends updates. They're all automated. Sue manually does it 30 days out.

And we're not saying, can you, Jeremiah? Just a little twist. We're very assumptive. We're reminding you that this is due in order to maintain your—

Got it.

Very important.