Can You Really Pull $200k From One Deal?

We talk about lucrative deals all the time. But $200k from one deal? Read on to see how we made it happen...

Recently, I was telling someone how one of our coaches made $200,000 on ONE deal... They looked at me like I had seventeen heads!

And I get it. To most people, the idea of making $200k on one real estate deal is unheard of. It sounds too good to be true, especially if they don’t understand the intricacies of terms deals. But these deals do happen, and this deal was as real as it gets.

So, let’s take a look at how this deal played out and explore some of the little nuances that helped us get $200,000 out of a single property.

A 3-hour drive for a $200k Payday

The property we’re looking at today is a rural California home with ten acres of land that was three hours away from our student who was doing this deal. Now, it might sound crazy to do a deal on a house that far away from you, but we do this kind of thing all the time. In fact, three hours is nothing—we often do deals over far longer distances.

The key to working out a deal like this is to get as much done as possible before you make the trip out to the property. In this case, we explained everything to the seller up front so that they knew exactly how we structure our deals. We only made the drive out once it was clear that they understood how the process would work and they were ready to make a deal.

And, by the way, we only did that drive once. We went out and negotiated all the numbers with them in person, then came back and drew up the paperwork to finalize the deal. That’s six hours of driving for $200,000—not a bad deal!

One important note: When you’re in a situation like this, you can always use what we call a “runner”—someone who lives in the area that you’ve hired to do things like put up signs, meet with prospective tenants, or set up a lockbox with a key.

The numbers

As mentioned above, this house was located in rural California. It was pretty out of the way, but it was in an area with a lot of expensive homes. This house was owned by an older, retired couple that wanted to move closer to town. When we came across it, the property was actually vacant—the couple had already moved and they were tired of dealing with this house. They were also paying for some maintenance costs to keep up the land, which was another incentive for them to get rid of the house as quickly as possible.

The property was free and clear, so we went for an owner-financing deal. We ended up purchasing the house for $617,000 with a five year term!

If you know anything about terms deals, you know that the longer the term, the bigger the Paydays! We’ve recently started increasing the length of our terms for two to five (minimum) or more years and seen nothing but success.

Here’s how the rest of it played out…

Payday #1 is, as always, the down payment. In this case, we asked for around ten percent—a pretty standard rate—so we ended up with a down payment of $60,000. Some of that was paid up front and the rest was paid over the first few years of the term.

Payday #2 is the monthly spread. In this case, we owed the seller $2,300 per month. That includes $400 in taxes per month and $1,500 in principal paydown. One important note is that we always pass the taxes on to the buyer. We make this very clear in our contracts and we explain it right from the beginning so there are no surprises. After all, they’re going to be homeowners so they should be the ones paying the taxes!

We were able to rent this property out to our tenant buyer for $3,150. That’s $850 in profit per month! And when you consider that this deal is over a five year term, that’s a whopping $51,000 in total—just on the monthly spread!

Payday #3 is the back-end profit from selling the house plus the principal paydown. The house sold for $659,000 which gives us a back-end profit of $42,900. That’s pretty good on its own, but we haven’t even gotten to the principal paydown.

Because this is an owner-financed deal, the principal paydown was massive. We mentioned above that it was $1,500 per month. Combine that with the five year term and you’re looking at $90,000 in principal paydown alone!

When you combine those two numbers and remove the down payment of $60,000, you end up with $72,900 in total. Add up all three Paydays, and that’s $183,900 in total.

That’s a pretty great number to look at, but I know what you’re thinking… “You said it was a $200k deal! That’s not $200k!”

And you’re right… But there are a few things we left out here. First of all, we’ll get an additional month’s rent on this. We always structure our deals so that we don’t start making payments until 30 days after (sometimes longer) we get someone in the property, so that’s an extra $3,150 in our pocket.

But that’s not all! There are actually about $300 in monthly maintenance fees on this property that we can pass on to the buyer if we want (and we very well might). When you factor that in, it’s another $18,000! If you haven’t been keeping up with the numbers, that’s a grand total of $205,050… On one deal!

One tip to take away from this deal

As you can see, owner-financed deals like this can get a little crazy because of the massive principal paydown. But the real kicker is the term length. When you look at a deal like this and compare a two year term to a five year term or even an eight year term, the numbers get big. Really big.

In this case, our student went into this deal asking for a seven or eight year term. As mentioned in the beginning, he negotiated this with them in person. But the key is that he was expecting them to talk him down to a lower term. He went in with a longer term knowing that this would happen, and he was already prepared to accept a four or five year term.

In this case, the seller came back to him asking for a five year term. He didn’t immediately accept. Instead, he said “I’m not sure if we can do that, but let me talk to my partner and see what I can do for you. I can’t promise anything, but I’ll try.”

In reality, he was ready to take that five year term right then and there. He ended up driving the three hours back and drafted up the papers that night. He called them the next day and they were thrilled that he was able to do a five year term with them.

That one move just put an extra $54,000 in his pocket from the principal paydown alone, compared to the usual two year terms that we’ve done in the past.

So, if there’s one tip to take away from this deal, it’s to ask for a longer term than you need! Chances are, you’ll be able to negotiate a slightly shorter term that still gives you a far larger Payday than if you were to go with a standard two year term or lower.

How does this $200k Payday stack up to your biggest deals? And have you ever experimented with increasing term lengths? If so, how’d it go?