Enter Into a Terms Deal, Even if the Seller Has Listed with a Realtor

Sometimes people want to go the conventional route, but that doesn't mean that a terms deal is out of the question.

Imagine this: You're talking to a seller about a potential terms deal for over a month, only for them to get cold feet and start working with a realtor instead. What do you do?

You don't give up, that's for sure. Just take it from an Associate of ours who was confronted with this exact situation on their first lead ever, and was able to turn into a successful deal. The most important thing is to always remember that we are offering something vastly different than a realtor can offer. We can also provide very specific benefits to both buyers and sellers that make rent to own deals a no brainer.

So, with that said, let's get into this deal to see how it shaped up.

The buyer that got cold feet

When we contact sellers about terms deals, they often don't initially understand what we're offering. That's why we train our Associates on how to have these conversations and how to explain what a terms deal is and why it benefits the seller.

Generally, the main benefits are that they get to access a large pool of potential buyers that would otherwise be unable to buy their home, they get a guaranteed cash out at the end of the term, and we take the property off their hands so that they don't have to worry about it. For someone who is having trouble selling their home conventionally and needs an "out," this can be a total lifesaver.

But some people just want to go the more traditional route. In this case, our Associate reached out to a FSBO (For Sale By Owner) that was on the market for $154,990. After talking with the seller multiple times, they were interested but not committed. It was their first time selling a home on their own, and they eventually got nervous and decided to get a realtor involved.

At this point, many people would have given up. But this situation is not a dealbreaker!

The costs of selling conventionally

Our Associate continued to follow up with the seller. Eventually, she found out a bit more information about the home. As it turned out, the seller had only owned the property for about a year and a half and had a mortgage balance of $142,630. With the $154,990 purchase price, closing costs, and the realtor's 6% commission that meant she would actually have to come out of pocket with cash if she sold the house with a realtor!

Even in the absolute best case scenario, she would owe about $3,000. But with a terms deal, she could net around $10,000 when all said and done—at the exact same purchase price.

After our Associate explained this to the seller, they couldn't even believe it. The realtor had never told them this, and they didn't even believe our Associate. They ended up calling a friend with real estate experience who confirmed everything that our Associate was telling her.

And with that knowledge, she was ready to get started.

3 Paydays™ and a motivated tenant buyer

Our Associate first contacted this seller in July. The deal was finally signed by the end of November, and under contract with a tenant buyer about 40 days after that.

So, what's the motivation for the buyer? Well, this was a unique one. After looking at the property, this person wanted to buy it immediately. It turns out that his grandmother had lived in the building as a tenant, and had always wanted to buy it. Now, he had the opportunity to do exactly that—and he wasn't going to pass it up.

The tenant buyer thought he could qualify for a mortgage to buy it conventionally, but after going through the process, he didn't end up qualifying. So he was thrilled to have the option to enter into a rent to own deal.

The purchase price for this deal ended up being exactly what the seller had it on the market for—$154,990. They settled on a sandwich lease purchase with a term of 36 months. Essentially, what that means is that the seller is going to get their equity on the home—in this case, $12,360—at the end of the term. After closing costs, that comes out to around $10,000 on this deal.

Payday #1 is the down payment, around $18,600 on this deal. That consists of one upfront payment of $10,000 and another payment of $8,600 during tax season, when the tenant buyer receives their tax return.

Payday #2 is the monthly spread. In this case, our Associate owed $982 per month to the bank, and was getting in $1,516 from the buyer. That's a great spread of $532 per month, or $18,648 over the length of the term.

It's worth noting that even though this rent price seems significantly higher than the mortgage costs, it's actually a very competitive rent price for the market. This was yet another motivation for the tenant buyer—they'd actually be paying less in rent per month than they were previously! (Most of the buyers we work with tend to focus more on the monthly rent price than the overall price.)

Payday #3 is the markup on the sale of the property, plus the principal paydown throughout the term. Our Associate sold the house for $185,990 and there was $239 going toward paying down the principal each month. That's $8,604 over the length of the term.

When you remove the $18,600 down payment, that comes out to $29,604 for Payday #3.

And when you add up All 3 Paydays™, the total comes out to $67,252. Not bad for this Associate's first deal ever, and one that most people would have backed down from. This goes to show that terms deals can offer things that realtors can't, and there are many reasons why a buyer or seller might want to opt for a terms deal as opposed to a conventional deal.