How to Make Over $5,000 Per Hour Doing Terms Deals

When you actually sit down and calculate the hourly rates you can make doing terms deals, the numbers can be shocking compared to most businesses.

The terms business is booming right now and we, along with our Associates, are doing more deals than ever. So we thought we’d take a minute to discuss something that rarely gets brought up in real estate; hourly rates!

Understanding your hourly rate can be helpful when you’re deciding on projects to outsource or people to hire. It can easily show you whether something is worth your time or not. But when we have our Associates calculate their hourly rates, there’s usually something else that comes up…

It’s way higher than they thought!

A less than average deal with a great hourly rate

Let’s look at a simple deal that one of our High Six Associates recently closed on. This is not an over the top deal by any means—in fact, it’s a little lower than our average. But you’ll see at the end that the hourly rate on this deal is phenomenal.

The source of this property was an expired listing, and our Associate found it through a sly broadcast (an automated calling system that we use to reach out to sellers). About two weeks after he sent the sly broadcast out, he got a call back from the seller saying she heard his voicemail and was interested in speaking about the property.

As it turned out, the house had been on the market (on and off) with a realtor for nine months. Understandably, she was getting pretty frustrated. She had recently bought a condo and did not want to deal with two mortgage payments.

This was a perfect opportunity for both our Associate and the seller, because she was able to get her mortgage paid off while he was able to structure a great sandwich lease deal over a 36-month term.

This house was originally listed at $175,000 and our Associate was able to purchase it for $174,000. But what is really happening here is that the seller had $35,000 in equity on the house and a loan for the remainder. In these cases, we come in and tell the seller that we will pay off their existing loan and give them the remainder in cash at the end of the term.

So, in this case, our Associate is paying off the remaining $139,000 on the mortgage and giving the seller $35,000. But the loan at the end of the term will be significantly less thanks to the principal paydown, which is where we make a large portion of our profit on these deals.

With all that said, let’s get into the Paydays…

Payday #1 is the down payment which was $20,000. That came in a few different payments. There was $6,000 upfront and then two $2,000 payments at the end of July and October. Then, our Associate scheduled two additional $5,000 during tax time of the current year and the following year. This is a great technique that we frequently use to help buyers use their tax refund to easily secure a down payment.

Payday #2 is the monthly spread. In this case, there was a $1,613 monthly payment to the seller and $1,910 coming in each month from the tenant buyer. When you multiply that profit ($297 per month) out over 36 months, the total for Payday #2 is $10,692.

And finally, there’s Payday #3—the back-end profit plus the principal paydown. Our Associate purchased the house for $174,000 and was able to sell it for $199,900 for a profit of $25,900.

And within that monthly payment of $1,613, $395 was going directly to paying down the principal. That’s an additional $14,200 over the course of 36 months. When you add those together and remove the initial down payment of $20,000, you’re left with $50,812.

And lastly, there’s the first month’s rent which we need to tack on as well. We always structure our deals so that our payments start one month after occupancy, meaning we capture that first rent payment. The logic here is that if someone is starting on May 1st, for example, the payment due May 1st is actually for April. We weren’t in the house during April, so why should we pay it?

When you add that, the total comes to $52,425.

Calculating the hourly rate

So, how did we come to the conclusion that our Associate made $5,000 per hour on this deal? Well, let’s look at the numbers…

Because the seller was currently living in the home, she was able to show it for us. This happens pretty often—and if it’s not the case, we usually opt for a lockbox to allow people in without us ever needing to show up.

In total, our Associate spent about 2 hours with the seller—one initial phone call, a 3-way call with one of our coaches, thirty minutes at the house, and then the sending/receiving of the contract. He also spent about three hours dealing with various potential buyers, including the ones that did end up purchasing the home. And then we’ll tack on another two hours for other miscellaneous work.

That’s seven hours total for this deal. But just to make it even easier—and to account for any other time we may have missed—let’s call it ten.

Divide the total profit on this deal—$52,425—by those ten hours and you’re right at $5,000 per hour. And let’s not forget that this deal is lower than our average and it was really closer to seven hours!

Do you ever calculate your hourly rate on deals? You might be surprised by the numbers… Share yours in the comments below!