In this roundup of different deal structures, market pressures and liens brought the sellers to us and our due diligence paid off.
Here I’ll review different ways a property can come to you and how you can navigate exceptional circumstances to favorable terms.
These two deals were instances where motivated sellers benefited from non-traditional deals and terms—perfect examples of ways you can pivot from standard procedures and structures.
Buy the House, Not the Liens
We’ll start with the eyebrow-raiser first.
For this property, the homeowner had two home equity loans, which were discharged when he filed bankruptcy and would be written off after 15 years. The owner was still tied to the property for another five years under that state’s statute of limitations.
Getting rid of the house enabled him to move on and retire in Florida. Meanwhile, we could sell the house, knowing that we could wait out the five years and our underlying debt would be minus the two liens. Win-win!
When structuring deals, my company and I create three paydays. On their own, those paydays would be a good deal in this instance—even if we had to pay off the liens, which is why we were able to make the decision to go forward.
In addition to that—and we knew this was a good possibility—the liens totaled about $195,000. We wanted to negotiate that down to something like 30 cents on the dollar. I was pretty confident we could get it done.
In the meantime, we had an attorney do some digging. They discovered the statute of limitations on the liens was less than five years from expiring. Those were attached to the house but not to us personally, as they stay in the sellers’ name and would go away with some help from our attorney.
So, with an additional $195,000 tacked onto the eventual paydays, this deal just got a whole lot better.
The Three Paydays
Payday #1 – $30K (bought for $361K, the amount of underlying loan and 2 liens)
Payday #2 – $60K (easily $1K a month with such a low loan-to-value
Payday #3 – Before the liens, he had about $33K
If we go five years, that’s $63K in the first and third payday and $60K in payday No. 2. Therefore, prior to adding back in the $195,000 in liens that will expire, it was $123K. Good deal, right?
Now, add the $195 and we’re over $300K on a house that’s selling for $400K because of the terms, loans, and expiring liens.
Capitalize on Slow Seasons
The second property was more of a ham and egg lease-purchase deal, meaning pretty boilerplate.
The property owner called in after being reached by a sly broadcast message as part of our “expired dialing process.” The owner had sold the home; he had a buyer with $100K to put down and pre-approval from the bank, but the deal died.
We talked to him about the deals we structure and how we handle non-conforming buyers. The owner said he understood all too well. He had a non-conforming buyer that caused the deal to die, so he took the house off the market.
The fall season was approaching. When this happens, people tend to panic if they’re in an area where weather can affect selling and other areas of the market. This can result in a lot of new properties listed. Our associate, for example, had taken on five properties in the previous 45 days.
The owner of this one was asking $520,000 and owed only $290K. They were sitting on a lot of equity.
We structured $230,000 and payoff of their loan on or before 36 months. Provided they could wait for their equity, this is a great setup for them.
The Three Paydays
Payday #1 – $40,000 down!
Payday #2 – $800 x 36 months = $28K
Payday #3 – Approximately $26K, calculating the principal paydown and markup
Total: $ 94,000
In two deals, we found nearly $400,000. One was a highly rare transaction and the other a more routine one, but both came about through months of following our systems.
Would you structure a deal on terms? Why or why not?