How Do You Find the Perfect Buyer with Terms Deals?

We get asked this question all the time. The answer is simpler than you might think!

Everyone wants to know how to find perfect buyers for terms deals. And it makes sense! Anyone getting into the terms niche wants to know 1) that they'll be able to find a buyer, and 2) that the buyer will be well-qualified and capable of closing out the deal at the end of the term.

In our experience, finding a well-qualified tenant buyer is easier than most people think (actually the easiest part of the process) — for a few key reasons. Let's take a look at one deal that shows why finding a tenant buyer is probably easier than you think, as well as some of our thoughts and tips on how to find a tenant buyer when you're first getting into the terms niche.

The house that wouldn't sell!

In this deal, one of our Associate's contacted an expired listing through a Slybroadcast. (This is an automated system we use to call on expireds where it leaves them a voicemail and they can call us back if they're interested.) He heard back a few days later and the seller was very hesitant at first.

In fact, they flat out said "no" to a terms deal. But our Associate was polite and let them decide for themselves. He followed up with them a few times over the next couple of weeks, and eventually he heard back from them out of the blue. They needed a guaranteed way to get the house out of their hands, and our Associate could provide that.

The house itself had been on the market for a while and never received much interest. The seller thought it was because of a number of small things—the layout, the paint color, the driveway needing to be repaved, etc. Our Associate knew that these were minor issues that wouldn't likely hold back a tenant buyer.

They proceeded to set up a sandwich lease agreement with a 36-month term. The seller had $269,752 in underlying debt on the property and wanted $65,000 in equity (meaning a figurative purchase price of $334,752) and our Associate was happy to make that happen for them.

Here's how the rest of the Paydays shaped up.

Payday #1, the down payment, consisted of $12,000 up front and then three payments of $5,000—one at the six-month mark, then at the one year mark, and then the following year at tax time, when the buyer would receive their tax returns.

Our Associate also secured the first month's rent on this deal by setting it up so that he wouldn't have to start making payments to the seller until 30 days after the tenant buyer moves in. (This is something we almost always incorporate into our deals so that we capture the first month's rent.)

All of that comes to a total of $29,196 for Payday #1.

Payday #2, the monthly spread, ended up being $346 per month for a total of $12,456 over 36 months. That's calculated from the payment coming in from the tenant buyer ($2,196) minus the payment to the seller ($1,850).

Payday #3 is the markup on the home, plus the principal paydown throughout the term. The markup here was substantial, as our Associate secured a sale price of $389,900—meaning a markup of $55,148. The principal paydown was significant as well, at $450 per month which comes out to $16,200 for the full term.

When you remove Payday #1, that comes out to $41,004 for Payday #3.

And that's a total of $82,656 for All 3 Paydays™!

Finding the perfect tenant buyer

At this point, you're probably wondering how our Associate was able to find a buyer to secure this deal. Well, let me first explain that finding a buyer for a traditional purchase and finding a tenant buyer for a rent to own deal are two very different things.

When we take on a property that is expired or has had little interest, we turn around and market it to an entirely different group of people. The realtor was looking for people who are qualified and ready to purchase a home. We're looking for people who aren't quite there yet. COVID has driven the amount of buyers struggling to qualify for a loan much much higher than normal and under normal circumstances it was already high.

That means we have a significantly bigger pool of people to work with. In the case of this deal, there was little interest in the property when the realtor had it on the market. But when our Associate placed it under agreement and then marketed it to our list (all people who wouldn't have been able to buy the house with the realtor) the response was tremendous. All of those things that may have been issues to other people—like the layout, driveway, and paint color—weren't a concern for the potential tenant buyers looking at the place.

In fact, there were so many people looking at the property that the seller even called our Associate and told him he had to stop showing it. Our Associate already had six people who had taken the next steps with him.

So, finding a tenant buyer is simple because you're marketing to an entirely different group of people than a traditional realtor and or would. These are people who will jump at the chance to become a homeowner because they would be otherwise unable to purchase a home through conventional means.

Which gets us to the second point; how to find the perfect tenant buyer.

This one is simple as well! It all comes down to doing your due diligence and making sure your tenant buyer checks every single box when you're qualifying them. We have an entire system for this, but the idea is that you should always default to what's on paper. Don't let your emotions play into it.

Nine times out of ten, when there is a problem with a buyer in a rent to own deal, it's because the person doing the deal trusted the buyer based on emotions, not on facts. So even if you "feel" like you have the perfect tenant buyer, make sure it all works out on paper before you proceed.

That's what our Associate did in this deal and with all of the other deals he has done to this point. And guess what? He has a "perfect" tenant buyer in every one of those homes.

What process do you use to qualify tenant buyers? Do you ever just go with your gut? Feel free to share your thoughts in the comments below.