How to Explain Deal Options to Sellers

Short and sweet descriptions will help sellers grasp these alternatives to a traditional home sale.

We specialize in atypical property deals which use different terms to purchase. If you have not read any of our past articles or our best-selling books, we purchase everything on lease purchase, owner financing or subject-to existing financing. We then sell only Rent to Own and Owner Financing. When speaking with sellers, this is how we differentiate ourselves from real estate agents and other buyers on the market.

Sellers who are unfamiliar with these property deal structures may be skeptical and hesitant to hear you out at first even though these strategies have been around for decades. That’s why you want to explain the basics of any proposed deal in the simplest terms. Below, we’ll provide scripts for introducing these core deals to sellers and provide examples of how they work because you getting comfortable with speaking with sellers will prove to be very profitable.

We look for win-win deals, and believe being transparent with who profits and when puts sellers at ease and makes them feel more involved in the process.

Assign Out (AO) Deal

An AO deal is when we find our tenant buyer and assign that package back to the seller (we have under agreement already) and step away after collecting only one Payday instead of our typical three Paydays. We have a super simple way to explain an AO deal:

You and I are going to agree on a minimum price. I will then take it to the market at a higher, premium price. As soon as I have a tenant-buyer ready to purchase the property, you and I will split the non-refundable deposit, which goes on top of the amount due at closing and sometimes higher than the agreed upon minimum.

When I take it to market, I can create a spread for you, from which you’ll benefit. That’s in addition to the benefit of the principal paydown if there’s a mortgage on the property. And since it sells at a premium there will be another Payday on the back end as well.

An example:

Purchase: $200,000 (seller’s minimum guarantee keeping in mind everything is negotiable after you bring it to market)

Premium we bring to market for: $250,000

Buyer: $50,000 down payment split 50/50 between you and the seller

(When I started doing these deals in 2013 I did 12 in a row like this and then realized I could be keeping more so we do many at 25%, 33% or 50% to seller).

Due at Closing to Seller: $200,000

Received already from your split: $25,000

Total: $225,000 seller net even though you offered $200,000 minimum.

Keep in mind they also get the principal paydown if there’s an underlying loan as well as any monthly spread we create for them. Our forms and paperwork allow for a total release of liability and we’re out of the deal. Your forms and paperwork here are critical. Our attorneys have almost 1,000 hours into our agreements and our students have access to those.

Sandwich Lease or Purchase

We will agree upon a price and then I will take over any and all responsibilities on the property --including maintenance, mortgage, taxes, insurance. At the end of the

timeframe we are both comfortable with, it’s going to come to a traditional close. That means you as the seller will lock in the equity for this at the end of the term.

You are locking in equity for this seller.

An Example:

Purchase: $250,000

Mortgage: $150,000

Equity: $100,000 (difference between purchase and mortgage)

You are agreeing to pay off the balance of the mortgage plus the $100,000. We suggest this language versus a “sell price” so the price on your forms and agreements is: “balance of mortgage plus $100,000 at time of financing/closing.”

Let’s say we agreed to 48-month terms. On or before that deadline, the seller gets the $100K in equity. Since it is a traditional sale, any and all liens on the property would be paid off. Whatever the remaining mortgage balance is at the end of the term, down from $100K to $80K or $50K, gets paid off so you benefited from the principal paydown unlike the AO deal above.

Owner Financing Deal

This is on the assumption that there is no mortgage, which is what we usually refer to when we say “owner financed deals”. There are a number of different deal structures to consider with existing financing in place, but that’s for another article and is more complicated.

We are going to agree upon a price today and then close on the property. We’ll take the title on the property and you the seller will be secured by a first mortgage on the property, essentially acting as the bank.