How Can You Make $187K On a $619K Home

Through a number of factors, we pivoted last minute to pick up an extra $66,000.

This example comes from one of my students who had some previous experience with construction and housing flips but this was his first deal. He had four homes under contract and this was the first to close. When I saw the property, I remarked to my wife that this house looks like an enormous church, and I was in touch daily to help guide him through this very different case.

Our student was in the midst of a conversation with a potential seller when their home phone rang. It was the seller’s sister, who lived in rural southeast Kansas, and mentioned to our student if he could sell the house he was currently in talks with her brother, she’d let him sell hers too. Well, the potential seller ended up going with a traditional deal after an offer came in, but he took on the challenge of the sister’s house anyway.

They agreed on an owner-financed deal, and when we say owner-financed, we mean it is free and clear making principal-only payments. Most of our owner financing deals are structured that way so we get enormous and fast principal reduction on a monthly basis.

The house was isolated and an hour from anything that resembled a business district. It had been on the market for roughly a year. We were able to move it in 90 days. Interest came in from all over the country. When I say “move it”, keep in mind most of our buyers are tenant buyers needing time for financing so we utilize the rent to own vehicle to do so.

This is a great reminder that you don’t need to pre-build a buyers’ list or accumulate buyers before you try to sell property when working on terms. Once you get a property, they will come. The buyer pool for terms deals is huge for a myriad of reasons -- one of which is that banks are just tremendously more stringent and tough to deal with for conventional financing. This student built a list of 800 buyers from his first four properties just being on the market.

The sellers were an older couple living in a different property but still held a sentimental attachment to this home. They wanted a decent price, but really wanted to make sure the new owners would take care of the property. As you’ll see, the sellers came down in price and were happy to when they knew a credible buyer would be handling their home -- us.

The Deal Structure:

As a reminder if you are not familiar with how we create 3 Paydays minimum per deal - Payday #1 is the non refundable down payment; Payday #2 is the difference between the payment to our seller and the lease payment we have coming in; Payday #3 is the increase in price plus the principal paydown we gain throughout the term.

Terms: 48 months / owner financing

Purchase: Originally was under agreement with us for $586,000 ($1,500 per month x 48 months)* It wasn’t moving for us and we made the deal contingent upon a buyer so we were able to go back to the seller and renegotiate a lower price of $520,000

Payday 1: $122,400 deposit

Payday 2: $16,800 ($350 x 48)

Payday 3: $48,600

Total: $187,800 (conservatively)

*The closing date for us to close on the home was fast approaching. While there had been plenty of activity, there were no legitimate offers. We went back to the seller and negotiated the purchase price to $520,000 (a drop of $66K). The intent was to then lower the sale price and get some offers, but as luck would have it, an offer came in before it had been adjusted down so we got an instant boost to projected profits.

Obviously, this isn’t the norm —especially for a first deal! The seller motivation and deal structure are similar to plenty of other deals, but this was like three or four deals in one. And the timing of that offer was pure luck.

The buyers had great credit, a steady job history and are in love with the house. They were anxious to get the down payments in to call the home their own, and they were able to thanks to this type of deal structure. That’s the kind of icing on the cake that makes these types of deals so fulfilling.