Why Is the TERMS Business SO Lucrative?

Nowadays, everyone and their brother is doing wholesale or rehab deals. Yet the TERMS business is still more lucrative than either of them and is the most Recession Resistant!

Instead of looking at one deal like we usually do in these articles, I’d like to take a moment to look at the big picture.

When you look at the real estate industry as a whole, the two main areas people get into are wholesale or rehab. The wholesale market is the natural path most real estate professionals take—but because everyone is interested in it, the checks are starting to get smaller. The wholesale market is drying up and is very competitive.

And on the flipside, the rehab business is becoming more popular than ever. Why? Well, I’d wager it’s because there are twenty-something different shows on HGTV about flipping houses. They make it look easy, fun, and lucrative—so everyone with a hammer and a pick-up truck thinks they can flip houses and is trying to get into it.

The result is that they’re paying too much and most of them don’t actually know what they’re doing, so the profits are shrinking.

Now, don’t get me wrong—there are plenty of people who are doing wholesale or rehab right. The pros are still able to nail these two areas, and there will always be people who are doing it correctly.

But here’s the kicker: the TERMS business is more lucrative, more accessible, more secure, and easier than wholesale or rehab! Oh, and by the way, the most recession resistant. Here’s why…

Avoiding the “J” word

The critical difference between the TERMS business and wholesale or rehab is the dreaded “J” word... The reality is that, until you can scale up to doing hundreds of deals, wholesale or rehab is still a JOB.

In wholesale or rehab, you get a check when you finish a deal. But then you have to go out and do it again to get your next check. And again, and again, and again…

I don’t know about you, but that sounds like a job to me. And isn’t the whole point of real estate investing to avoid working nine to five? Isn’t the whole point to build the lifestyle you want and deserve, instead of being chained to a job? (That’s why I got into it, at least!)

Well, the TERMS business allows you to do just that. With terms deals, you get three Paydays…

• Payday #1 is the down payment, which ranges from $10k to $30k on average for us but figure 7%-10% of sales price.
• Payday #2 is the monthly spread, which ranges from $300 to $1,000 per month, on average.
• Payday #3 is the back-end profit, which ranges from $30k to $50k on average and is a combination of price increase and principal paydown throughout the term of your deal..

These paydays make the TERMS business unique. With these three paydays, you get paid up front in the form of a down payment, you get continuous cash flow with the monthly spread, and then you get a big bonus at the end with the back-end profit.

In your first year of business, most of your income will be coming from the Payday #1s. And as you can see by the averages above, this is a significant amount of cash we’re talking about. You’re getting paid right at the beginning, instead of having to go through a whole deal or fix up a house to get a check.

Then, you continue to get income during the middle of the deal (while you do nothing, or more likely, while you gather more down payments and make more deals). With this continuous cash flow, you’re set up for success.

And finally, once you’re a few years in, you start to get paid out on the back end. These Paydays are even bigger than the down payments, so now you’re starting to generate some serious revenue!

The beauty of terms deals is that you only need to do this for a few years to set you and your family up with the life you desire. Let’s look at an example…

All you need is one deal per month

Imagine you put 12 deals together per year, or one per month. When I started out, I was doing 13 deals every six or seven months, so this is a fairly conservative number. And let’s just look at the lowest numbers to be even more conservative.

If you’re doing 12 deals per month, you’re getting $10,000 every month (just as a conservative exaple) for the first year from the down payments. $120,000 in your first year! Not bad, if you ask me (and remember, some of those down payments will likely be WAY higher).

You’re also going to start getting the monthly spreads. If you figure $300 per month (which is VERY low), that’s $3,600 per month in continuous cash flow. If you do another 12 deals the next year, that number doubles to $7,200 per month (plus the additional down payments, which we won’t even get into).

Once you’re two years in, you’ll start cashing out on the back end. So now we’re looking at $30,000 to $50,000 each month! Now you’re pulling in another $360,000 per year from these deals closing out. (And it could easily be closer to $600,000!)

If you can get into the rhythm of continually doing 12 deals per year for three to four year… You’ve just set yourself up with a nice nest egg. But here’s where it gets really good.

Taking it to the next level with an IRA/401(k)

Once you’re a few years in, you should have your cash flow locked down. At that point, you can take things to the next level by incorporating a tax-free account like an IRA or 401(k). This allows you to start accumulating massive tax-free profits.

And I know what you’re thinking… You’re saying, “Yeah, Chris—but I can only contribute so much to my IRA!”

And you’re right! But this isn’t about contributing. It’s about doing these deals in your IRA or 401(k). That means taking a $100-$500 deposit from your IRA and doing the deal with it—meaning you’re capturing all three paydays into your IRA from a simple $100-$500 deposit. As an example, last year we cashed out of a property that was held in my IRA-owned LLC. We initially put $500 down and the cash out was approximately $116,000.

And you know what that means! Now your money is working for you and accumulating massive returns, all tax-free.

And THAT Is why the TERMS business is far more lucrative than wholesale or rehab.

Have you dipped your toes into the TERMS business yet? If not, what’s holding you back? I’d love to chat about it.