Should You Take the Deal?

When you're doing lots of deals you might need to turn some away. But how do you decide?

When you first start out in real estate, you need to take on just about any deal that comes your way. But once you've established yourself, you'll eventually find yourself in a position where you can begin to turn away deals that don't fit what you're looking for. Maybe you're busy with a few other deals, maybe you have some reservations about the property, or maybe you just don't want to add that extra work onto your plate.

Whatever it is, you should always think through each property and look at the potential value—even if you don't want the deal or don't need it. Even if you have a million other things going on, it could be worth adding one more deal to your plate if it's the right deal.

One of our Associates recently found himself in this exact situation. Let's see what happened.

On the market for over TWO years

The property in question was an expired listing that our Associate reached out to by phone. This particular house had been on the market two times—once for a year and then again for a year and a half. Two and a half years in total!

The seller was an older gentleman and he had one specific request. He didn't want to put a sign in the yard for a year. If it took longer than a year to sell, then our Associate could put a sign up. That's not a huge deal for us, but it is a bit odd.

Our Associate didn't want or need this deal, and between the long time on the market and the quirky sign thing, it seemed like something he might want to pass on. But he still did his due diligence and investigated the property.

The house was in a nice area near a golf course. Our Associate actually went out to the house to check it out and meet the seller in person, and he liked what he saw. Between the quality of the house, the location, and the seller—who he later became friends with—it seemed like this deal could actually be well worth his time.

So he took it on! Let's take a look at the Paydays to see if it was worth his time in the end.

All 3 Paydays™

The house was purchased for $399,000 on a 24-month term. This deal was structured as a sandwich lease purchase. It’s extremely odd for us to take on a 24-month term, and especially so during COVID.

Payday #1 is always the down payment. Oftentimes, we spread these out over a year or two with scheduled payments to make it easier for the buyer to pay the full amount. In this case, our Associate scheduled one upfront payment of $16,900 and three more payments of $10,000 over the next 18 months.

The buyer received two bonuses each year at his job—one in March, and one in September. So our Associate scheduled those additional payments to coincide with his bonuses, meaning the buyer could take his bonus from work and apply it directly to the down payment.

This is a technique we use often, and buyers love it because they don't have to think about how they'll come up with the money for a large down payment. It's all taken care of from the beginning. It also allows them to pay a higher down payment, which in turn helps them secure a better mortgage at the end of the term.

Payday #2 is the monthly spread. In this case, our Associate owed $1,965 per month to the seller and he had $2,400 per month coming in from the buyer. That's a spread of $435 per month, which comes out to $10,440 over the course of the 24 month term.

Payday #3 is the premium from the sale of the house plus all the principal paydown that accrues throughout the length of the term.

The house sold for $469,000, or a premium of $70,000. And out of that $1,965 monthly payment to the seller that we mentioned above, $475 of it was going to paying down the principal. Over 24 months, that's $9,360. When you remove the initial down payment, our Associate is left with $32,460 for Payday #3.

Add up All 3 Paydays™ and the total comes to $89,760! Not bad for a deal that he didn't need or want in the first place.

In the end, this deal was well worth our Associate's time. Not only did he secure a great Payday for himself in the end, but he became friends with the seller and was able to put the buyer into a great home they otherwise wouldn't have been able to purchase. As we like to say, this one was a win-win-win.

Do you ever find yourself passing on deals? Why or why not? I'd love to hear your thoughts, so just comment below.