How to Turn an Expired Listing Into $75,000 in Profit

After 275 days on the market, this seller needed to get their home sold, and we were able to help them out!

Could you imagine listing your home with a realtor, only for it to sit on the market for 275 days?! Well, that's exactly what happened to the seller in this deal. Now, don’t shoot the messenger—I was a realtor once upon a time. The fact of the matter is that the TERMS deals we do serve most sellers much more effectively, as we can buy it. For the sellers that need to get out now and need to be cashed out now, realtors can do their thing.

After listing his property with two realtors and having it sit on the market for a whopping 275 days, this seller was at his wits end. But then he got a voicemail from one of our Associates, asking if he would be interested in selling his house on terms. He called back, and the rest is history!

Let's take a look at how this deal worked and why it was so important for both the seller and tenant buyer.

Motivations to sell and buy

There are many reasons why sellers and buyers might turn to a terms deals, and this deal will show you why the rent to own model can be so valuable for people in certain situations as buyers and why and how sellers can benefit from us buying on terms.

The seller in this deal was obviously getting frustrated after having his house sit on the market for 275 days. He had no need for the house. It was his mother's house, who had previously passed away, and he had his own home that he was living in.

He also had renters in the unit, which was in violation of the HOA rules. The HOA knew about this and was letting him do it for a short time, but he couldn't keep it up forever. The HOA fees were also fairly high, which didn't help his odds of selling it. As it continued to sit on the market, he needed to look for alternative solutions to sell the property.

The buyer also had his own motivations. He had recently gone through a divorce, which involved a bankruptcy that destroyed his credit. He wasn't able to purchase a home conventionally, which meant that he was forced to rent. He told us that he was paying $2,500 per month in rent! He was getting nothing out of that, so he wanted to get into a home where those monthly payments could at least be going to paying down a mortgage.

These are just a few specific reasons why someone might want to enter into a terms deal, from both the buyer and seller perspective. Over the years, we've seen hundreds of different motivations for rent terms deals—but the gist is always the same. Sellers need a quick (and guaranteed) seamless way to sell their home, and buyers have something that is preventing them from being able to purchase a home through conventional means as of that moment in time.

We solve both those problems. As we like to say, we're in the business of fixing pain!

The 3 Paydays™

Now that we understand the motivations behind this deal, let's take a look at how the numbers shaped up.

From the initial contact, it took about two weeks to get this deal under contract. From there, it was about four months until our Associate found a qualified tenant buyer. That is a bit longer than normal, but remember that this house was on the market for 275 days! Our Associate found a tenant buyer in half that time, and for the seller, it was out of his hands during that entire 4-month period.

This deal was structured as a 60-month sandwich lease purchase, with a purchase price of $328,000. If you're new to our deals, you should know that we only use the purchase price to calculate the equity we owe the seller.

In this case, the seller owed $239,000 on the property. With a purchase price of $328,000, that means our Associate owes him $89,000 in equity. With a sandwich lease purchase, all we're doing is paying off his underlying debt and giving him the remaining equity in cash.

Payday #1 is the initial nonrefundable down payment. We often structure Payday #1 with multiple scheduled payments to make it easier for the tenant buyer to get some money down on the property within the first one to two years.

But in this case, our Associate was able to secure a nice 7% down payment up front. That's $27,000 for Payday #1.

Payday #2 is the monthly spread on the property. That means we take the monthly payment coming in from the tenant buyer, minus the payment going to the seller to cover his mortgage, insurance, etc.

For this deal, our Associate owed the seller $2,678 per month and agreed to a monthly payment of $2,802 per month from the tenant buyer. That's a monthly spread of $142, which comes out to $7,440 over the course of the 60-month term. That might seem low, but it's okay—you'll see how our Associate made up for it in Payday #3.

Payday #3 is the markup on the home, plus the principal paydown that has accrued over the length of the term. With a sandwich lease purchase, we capture the principal that's being paid down each month because our agreement states that we're paying off the seller's underlying debt at the start of the term.

In this case, that means $354 out of that $2,678 going to the seller per month is going toward the principal. Over 60 months, that comes out to $21,240.

The sale price on the home was $369,000, which is a markup of $41,000. When you add those together and remove the initial down payment of $27,000, you're left with $35,420 for Payday #3!

That means the total for All 3 Payday ™ comes out to $71,482. That's right in line with our average of around $75,000 per deal. Not bad for a house that sat on the market for 275 days that's going to a buyer who would be otherwise unable to purchase a home!

Have you ever taken on a property that's been on the market for this long? How'd it go? Share your stories in the comments below.