Now you must really think I’ve lost my mind! I can just hear you now… “Jim! You just said there is NO EQUITY in the deal, so how can you possibly think that you’re going to make five grand?” Is that what you’re saying? Well, just hold on for a few minutes while I show you step-by-step how to do just what I’m talking about.
How the Deal Works
Get an option to buy a pretty (no repairs needed) house that is 100% leveraged but that has a low fixed-interest rate mortgage on it. Then the idea is to find one of the 82 million people in this country that WANT to own a home but CAN’T qualify for a mortgage and DO have at least a small down payment, and then play cupid by setting them up with the owner of the house who is willing to sell their house on a Lease-Option. The goal is to get the BUYER to pay YOU the down payment for releasing/terminating your Option to Buy agreement w/ the seller, which thus allows the buyer and seller to do their deal. This could be as low as a few thousand dollars or as high as $20,000 or more! That is the nuts and bolts of the concept, but of course there are a host of steps and details to take care of in the putting of this deal together.
#1 – Find the Seller
Your ideal candidate is someone that has little or no equity, has a “pretty” house, and has a low-interest rate and (thus a low) monthly payment. So go to your county website or courthouse and find the names of individuals (i.e. not corporations) who have purchased a property in your county since Jan. 1, 2009, since these are post-bubble transactions, and because mortgage interest rates have been very low since January 2009. Anyway, once you’ve found the list of these people in your target market, contact them with whatever means of marketing you like…letters, postcards, door-hanger, whatever.
#2 – Present Your Offer
Once you have pre-screened your seller, ask them, “If I find you a good person or family who has good income, good background, and all the things you’d want to see, would you consider selling your house on a lease-to-purchase to that person if I didn’t charge you a dime for finding that buyer?” (if “what’s that mean”) “Well, it’s really a great way to capitalize on the massive amount of people who are good people, have income and down payment, but have bruised credit. The way it works is once we have found a good candidate that you are really comfortable with, you’ll begin leasing (renting) the house to them. While you’re leasing the house to them, we’ll set them up with the nation’s leading credit restoration service (www.RealCreditHelpNow.com) so that they can get qualified to get a mortgage at some point in the near future. Meanwhile, you’re not going to be responsible for any maintenance or repairs for the property. Does that sound like it would be a good way to solve your current situation?” You get the idea. Once you’ve “closed” them on the phone, go get an Option Agreement to buy their house on a Lease-Option. This gives you the “equitable interest” (the legal right) to market that house and find that tenant buyer for the seller.
#3 – Find the Buyer
My mentor, Jon Iannotti, always says, “Market the house and sell the terms.” That couldn’t be more true! The buyers that you’re going to attract, do not care about price; they care almost solely about the TERMS, i.e. no bank qualifying, monthly payment, and down payment. No matter what forum you use for your marketing the phrases you use are going to be the same – “No Bank Qualifying” “Bad Credit/Foreclosure OK!” “Act Fast, this Home Won’t Last!” etc. Use craigslist, signs, flyers, and whatever else you want to use to bring potential buyers into your system then filter them to find the person w/ the highest down payment and that passes the basic pre-screening filters that you pitched to the seller.
#4 – Close the Deal
Now you’ve collected the earnest money deposit from your buyer, your seller has agreed (verbally) to do the Lease-Option with your buyer, and everyone is happy, now it’s time for all the paperwork to get finalized at your attorney’s office where you’ll collect your check from your buyer. Once you have collected the Termination of Option fee (note: NOT an assignment fee), from the buyer, the attorney will guide everyone through the signing of the documents to complete the transaction. And get a load of this…get your buyer and your seller to pay the attorney fees!
Summary and Notes
Wow! That doesn’t seem too hard, does it? It couldn’t be any more simple – you tie up a property, find a buyer for the property that wants to buy on the terms that the seller agreed to, you brought the two parties together by coordinating the closing, and you walked out of closing with a two, five, ten, or even a twenty thousand dollar check!
- Always have an attorney “close” these deals. He/she should draft all agreements except the intial option agreement.
- Do your marketing! You won’t find any sellers or buyers by mere osmosis….you must go find them.
- Get someone to help guide you through your first few deals.
- Get out there and make some money! 🙂