How to Explain All of the Options to Sellers - On TERMS

We typically structure one of four types of terms deals. Here's how we explain them to sellers.

We understand that most sellers—or most people, in general—aren't fully aware of how terms deals work; otherwise known as Creative Financing. Oftentimes when we reach out to sellers, they've never heard of a terms deal and we have to explain how they work. Part of that is explaining all of the options available to them, so they can choose the one that best fits their goals.

And as always, this is not about "convincing" sellers to work with us. We simply explain how these deals work and how we can help them out of the situation they're currently in. We're often able to get them far more than they would from a traditional sale while also ensuring they get cashed out by a specific date. For most sellers, that's an enticing offer.

We typically structure one of four terms deals with sellers, so let's take a look at how we explain each.

1. Assign Out (A/O)

Assign Out deals (or A/O for short) are the simplest version of a terms deal. They are generally good for sellers who want to maximize their profits and are willing to put some work in on their end, as they end up capturing Paydays 2 and 3 for themselves.

Here's what we do when we explain these deals to a seller. We tell them: If you were to enter into a deal with us, we would…

• Agree upon a minimum purchase price (the price you do not want to go below)

• Agree upon a minimum monthly payment which includes your spread, or how much profit would you like to make per month
• Agree upon a time frame in which you would like to close out the deal (on average, our buyers need somewhere between 18-24 months)

If we can agree on all of those points, then we will write up an agreement and take it to market at a higher price. We are able to market at a higher price because our buyers are willing to pay a premium for a clear path to become mortgage ready.

Our market is people who are just outside of financeability at this time—people who are mainly self-employed or have had a legitimate hiccup with their credit—and because they are unable to purchase a home through traditional means, they are willing to pay a bit extra to become a homeowner.

Once we get a buyer in hand, we'll then bring them through our extensive vetting process. We'll do background checks and determine how long it will take them to secure a mortgage. Once that is complete, we'll pass our findings on to you (the seller) and you can decide whether or not you'd like to accept the buyer.

If you accept the buyer, we would then collect the nonrefundable deposit (we usually negotiate a portion of this for ourselves, but that's for another article entirely). You'll then take over the deal and receive the monthly spread, principal paydown, and purchase price of the home.

A/O deals can be very profitable for sellers, but it requires the most effort and risk on their part. For sellers that don't want to deal with that, the next type of deal—a sandwich lease purchase—is perfect. We also prefer NOT to do many of the A/O deals as they are not 3 Paydays™, only one.

Sandwich Lease Purchase

A sandwich lease purchase is typically structured with sellers who have mortgages. The seller doesn't have to have a mortgage, but we'll assume that they do for this example.

Here's what we do when we explain a sandwich lease purchase to a seller. We tell them: If you were to enter into a deal with us, we would…

• Agree upon a minimum purchase price (the price you do not want to go below)

• Lock in the equity at that time (the difference between your mortgage balance and purchase price)
• Agree on a definitive end date where we will pay off the remaining balance on your mortgage and give you your equity in cash

Once all that is agreed upon, we would then take over any and all responsibilities associated with the property. That includes the mortgage, maintenance, taxes, insurance, repairs—everything.

The simplest way to look at a sandwich lease purchase is that it's a delayed cash sale. The title stays in your name, you keep all the tax benefits, and we are contractually responsible for everything.

Sellers love these deals because they are removed from all responsibilities associated with the property and they can rest easy knowing they'll get the equity they deserve at the agreed upon date. We love them too, since we capture All 3 Paydays™, securing profit from the deposit, the monthly spread, the markup on the home, and the principal paydown.

Owner Financing

While we typically structure Sandwich Leases with sellers who have a mortgage, Owner Financing deals are the opposite. We only structure Owner Financing with sellers who are free and clear on their homes, so we'll assume that's the type of seller we're working with here.

Here's what we do when we explain an Owner Financing deal to a seller. We tell them: If you were to enter into a deal with us, we would…

• Agree upon a minimum purchase price (the price you do not want to go below)
• Agree upon a monthly payment, which tends to be principal only (that allows us to pay you your price or even a premium on the property)
• Agree upon a balloon date when the lump sum will be cashed out to you (the purchase price minus the principal paid up to that date)

Once we agree upon that, we would write up a purchase and sale agreement and close on the property. The title transfers to our company and you will be secured by a first position on the property—the same position a bank would be in, and the most secure position.

You would be holding that mortgage and getting paid monthly over the course of the term and then we would cash you out on or before that agreed upon end date.

That's it! This is one of our favorite deals to use because we receive massive principal paydown along with all of the benefits of ownership—depreciation, tax benefits, and more control. Sellers also love it because it sometimes benefits their taxes and they're able to secure a much higher purchase price because we're capturing all the principal paydown.

Note: Whether you structure a definitive close date or a close date contingent upon finding your buyer before you start payments is up to you and how you negotiate the deal.

Subject To

The last type of deal we use is called a "Subject To." This is the trickiest deal of the four, and it is mostly used when sellers have little to equity in a property. This is often referred to as “sub-to” and it simply means you are purchasing the property subject to the existing financing staying in place and in the sellers’ name. You are never assuming a loan or signing personally.

Here's what we do when we explain a Subject To deal to a seller. We tell them: If you were to enter into a deal with us, we would…

• Agree upon a purchase price
• If there is little to no equity, agree upon the balance of the current mortgage

From there, we close on the property. The title transfers to us and the mortgage stays in your name until we cash out the property in the future. During that time, you have zero responsibility for the property. We're contractually obligated to keep your mortgage current and maintain the property—which includes everything from repairs to maintenance, taxes, and insurance.

On our end, we need the principal to get paid down and the property to appreciate during this time. That gives us some equity in the property so we can sell it in the future.

Note: Whether you structure a definitive close date or a close date contingent upon finding your buyer before you start payments is up to you and how you negotiate the deal. But on these sub-to deals, the seller is often under financial pressure and may need immediate debt relief.