In this article, you’re going to learn how to take something that most people think is complex & confusing and make it easy to understand & implement.
Wholesaling real estate deals is a great way to make money! And it’s typically the way most people start off in this business. But if that’s all you do, you’re leaving a TON of that money on the table. What do you do when you talk to a motivated seller who needs to sell their house, but either owes too much on it or won’t sell it for less than your wholesale cash-buy criteria? Most wholesalers simply have to pass on the deal, costing them tens of thousands of dollars in the process.
But what if there was a way you CAN still make money on those deals? What if you could make great money on pretty houses in nice neighborhoods? Well…there IS! Actually, there are a FEW ways to make great profit – often with less hassle and more profit than those wholesale deals.
The answer is TERMS! Terms deals are an amazing way to do real estate deals, especially when the seller owns the house free & clear or has a lot of equity.
Why? Because of all the advantages to both you and the seller. As an investor, adding terms to your arsenal of tools will allow you to buy houses, typically without: qualifying for bank loans; raising private money; needing great credit; or even needing a large down payment!
So why don’t more investors do these terms deals? Well, there’s a lot of reasons why, but we only have time to get into one of those reasons in this article. And that reason is: Most people are so CONFUSED by the simple logistics of HOW to do terms deals that they just don’t do them at all & stay stuck in their wholesaling & rehabbing comfort zones.
So let’s change that, shall we? Let’s break this down and look at…
The Five Points of Negotiating a Terms Deal For Maximum Profit
It typically works like this: As real estate investors, we primarily buy houses for either CASH or TERMS. When we buy for all cash, we need to do so at a low enough price in order to justify the cost of raising the funds as well as the inherent risk we take on by doing so. But again – what if the seller just can’t or refuses to sell for a low enough price in order for us to do business together? The answer: Make them a Terms offer!
If you’re new to the concept, you’re probably thinking, “Yeah! That sounds GREAT! But…uh…HOW do I make that terms offer?”
Glad you asked. Here’s how. As the title of this article indicates, it all comes down to the following FIVE things:
- Purchase Price
- Down payment
- Monthly Payment
- Interest Rate OR Monthly Rent Credit Amount (For a lease purchase)
- Term (Length of time before cashing out/paying off conditions of agreement)
With that in mind, we now need to know what our objectives for each of these things are. Apply a little common sense and it’s pretty obvious that when we’re BUYING, we want:
- The PURCHASE PRICE to be as LOW as possible;
- The DOWN PAYMENT to be as LOW as possible;
- The MONTHLY PAYMENT to be as LOW as possible;
- The INTEREST RATE to be 0% or as LOW as possible; or the MONTHLY RENT CREDIT to be HIGH as possible (so you get more credit for what you pay).
- And the TERM to be as LONG as possible.
Got it? Good! So as soon as you confirm that the seller is open and amenable to doing a terms deal (refer to my previous articles for some magic words, scripts and vocal tonality magic to help determine motivation and pre-frame your offer), all you do is simply negotiate those five points above.
Remember to present a BENEFIT or two before you ask the negotiation question. For example, to negotiate a decent Purchase Price, you could ask, “So, if we were able to make this a really easy transaction & close as soon as you’re ready, what’s the LEAST you could sell this house for?”
Use that idea to negotiate each of those five points with the seller. I recommend that you NOT negotiate too hard on the phone the first time you talk with them…unless you truly feel that they’re ready to do business right away.
Now that we’ve got that out of the way, let’s look at those SAME FIVE POINTS when it comes to dealing with the BUYERS of our houses, ok?
More common sense applied: We make our money in the MIDDLE, by controlling the deal. So naturally, we’d pretty much want to reverse everything from the above list. But just to make things perfectly clear, here’s the list of what we want to do when SELLING a house. We want:
- The PURCHASE PRICE to be as HIGH as possible;
- The DOWNPAYMENT to be as HIGH as possible;
- The MONTHLY PAYMENT to be as HIGH as possible;
- The INTEREST RATE to be as HIGH as possible; or the MONTHLY RENT CREDIT to be LOW as possible (so you don’t have to give too much credit).
- And the TERM to be as SHORT as possible (usually. It depends on your goals)
Here’s a Handy-Dandy Chart I just made for you!:
And there you have it! Those are the Five Magic Points of Negotiating a Terms Deal! Now that you know these secrets, it doesn’t seem too hard anymore, does it?
So the next time you come across a situation where the seller has some flexibility on how they sell their house, and they’re able to wait a little while for the majority of the cash from the sale proceeds, why not see if you can negotiate a decent terms deal with them?
Congratulations! Once you start applying these principles, you should be able to do at least TWICE the amount of deals you’d only be able to do as a wholesaler. So have fun with that!
Until Next Time,