• Home
  • |
  • Do More Deals By Giving Sellers Options – The REI Secrets Series

When I first started out doing deals, all I really did was make cash offers.

And guess what. It didn’t work very well. Sure, I may be made one deal in thirty that I attempted. But it was difficult for me to see the house and speak with the seller in person since I was also working a full-time job.

Then, I started also offering a lease option. Guess what? My number of deals went up. The more I learned, and the more options I had available to offer to a seller, the more deals per month I was able to close. And this is all with the same amount of marketing, and the same amount of leads.

Different offers work in different situations, so it’s important to really build that rapport with the seller. That way, you can use your knowledge of their situation and motivation to help make the best offer you can. If a cash offer isn’t even possible for them, don’t waste time with that option. If the cash flow is good, don’t give them a lease option assignment offer.

You can also overwhelm a seller if you give them a bunch of options upfront. The best thing to do is present one offer at a time. Start with the offer you think is the best for both you and them. If they say no, try a different option.

Using a specific property in St Louis, we break down all the math and formulas involved in coming up with a few options, plus tips on how to present those offers to the seller. At the end of the day, the best option is the one where everybody wins: yourself, and the seller.

Watch and Learn:




Listen and learn:

What’s inside:

  • More options = more deals.
  • The importance of meeting a seller in person.
  • Which options to use, and when.
  • Don’t overwhelm the seller: one option at a time.
  • How to run the numbers for various options on one property.

Mentioned in this episode:

Transcription:

Download episode transcript in PDF format here…

Welcome. This is the Real Estate Investing Mastery podcast.

What’s up, everybody, how are you doing, Joe McCall here, my secrets. This is my special weekly ARIA Secrets webinar that I do for you guys where I’m just going to come in and I love talking about marketing, automation and delegation. I believe there’s three keys to success in this business. Right. Marketing, automation and delegation. And so my goal on these weekly webinars is to just teach you some stuff that we’re doing now, things that we have found that are working and teach us some cool things. And so I hope you guys are doing well.

We are actually live right now in front of a studio audience. I’m just kidding. We’re live in front of a bunch of people on Zoom, and I’m trying to broadcast this as we are live into the YouTube’s in the Facebook. So I think we’re still good. Oh, I am. There we go. What’s up, Facebook and what is up YouTube. All right.

Now, today we’re going to be talking about giving sellers options. And I think this is really important to understand, because if you want to do more deals, you need to give the sellers more options. And so many times investors struggle because they just only have one thing that they can give to a seller. And that’s a cash offer at 60, 70 cents on the dollar. Even in this hot, competitive, crazy market, it’s hard enough to do deals as it is. Right. And if all you know how to do is make a cash offer to a seller, you’re going to struggle. And I don’t want you to struggle. I want you to do deals. I want you to do more deals. And I’m going to show you here, hopefully I’m going to try to get my iPad to work. And if it doesn’t work, then I will do it another way. And I think we’re going to be good. Let me give you a little context here. When I was first getting started in real estate, I only really kind of knew how to do cash offers. And so I would make a cash offer to the seller. And I was also working full time so Icouldn’t go see the house. And when you’re trying tonegotiate a huge discount, 30, 40 cents on thedollar on aproperty that needs a lot of work, you kind of need to see it. You need to see the kind of work that needs to be done, what kind of condition it’s in.You need to meetwith the seller so you can build rapportwith them and so thatyou can negotiate that big discount that you’re going to need on acash deal. And many timeswhen you’re doing that over the phone, it’s a lot harder to do unless the seller isreally motivated.So even the deals that we do virtually in other markets, we still send somebody to go look at the house. You’re always going to do better. You’re always going to do more deals when you can actually meet with the seller inperson, face to face,belly button a belly button and build a rapport and negotiate with them there. And so you canpoint to thekitchen that needs to be replaced. You can point to the roof that needs to be fixed.And you cansee allof this stuff when you’re justdoing deals over the phone, which is what I was trying todo because I was working my fulltime job at a familyat home. I think Imight even have even been working on my MBA at the time or something like I didn’t have time to go look at houses.I didn’t want to either. So I learnedearly on if I wanted to do more deals, I need to learn how to give the seller’s options. I need to give them choices.And so I startedfalling in love with lease options back then in2008, and I started giving the seller the cash offer.In addition to that, I would give them a leaseoption offer and I foundthat I started doing moredeals. And I’m talking now,guys, about the difference between getting one out of 30 offersaccepted to maybe twoor three out of 30offers accepted just bygiving the seller’s options.Wouldn’t it be nice ifwith the same amount of marketing, the same number of leads that you’redoing, you now candouble or triple yourdeal flow just by giving them options?If you’re tired of throwing away leads that don’t have enoughequity, aren’tmotivated enough, and just throwing thoseleads away, wouldn’t it be nicenow if you could give themsomething instead, something insteadof a cash offer? So I just got off the phonewith a particular friend of mine and his wife talking about a particular deal. And so thereI’m going to talk about this deal here and I’m going to keepthis I’m notgoing to pull up the address of the property. What I want to do here, my goalin this is to kind of openup your mind and see the different options that you can give to sellers and how we kind of structured this particular deal.And this is,I think, going to help you. I’m going to try to draw it out so you don’t have toyou can look at it and not worry about fancyspreadsheets or softwarecalculator. Let’s just doit on penand paper or in my caseand iPadand pen. And let’s look at it this way right now. Let me sayone more thing to when it comes to something offers an options to sellers. Sometimes people make the mistake of at the verybeginning after yourfirst talkto the seller, giving themtoo manyoptions. And sosometimes you can make that mistake aswell, where maybe acash offer is not even on the table. So don’t make the cash offer to that.Maybe there’s no way theywould ever do a lease option. So don’t make that optionto them or it could be there’s good cashflow onthis deal. You want to stay in the middle, so you want todon’t give them a lease option assignment, whichis a leaseoption assignment as a wholesaling leaseoption deal where you’re just going toassignyour leaseoption and be done andout of the deal. So I’m just saying, like, I typicallydo not givethe seller threeoptions or multiple. Option letterof intent until they’ve already said no or untilI’m kind of atan impasse, I will usually present. This is important. Understand this oneoffer at a time. You want to give one offer at a timeto the seller. So if a cashis what you most want to do and you feel like it is in theirbest interest, then give them a cash offer. If you feel like a lease option, you know they don’thave enoughequity and you want tooffer a lease option, then give them the sandwich lease option first. Don’t give them to leaseoption offers a lease option, sandwich leaseoption and a lease optionassignment. If they sayno to the sandwich lease option, then give them the wholesaling lease option.Right now, most of the time sellers, especially rightnow in thishot market, they’re going to sayno to all of your offers,OK, which is totally fine. However, you’re goingto find situations like the deal we’re working on right now inSt. Louis, where the selleris motivated and they’re motivated for one simple reason, lost her job, two mortgagepayments.And this is a house they’ve already moved out of. They already haveanother house andthey don’t have to sell thishouse tomove in or buy or get a mortgage for this other house.They’ve already bought it, but theyhave losttheir job and they arethere. They don’t let her know how much longer they’re going to be able to make their mortgage payment of eleven hundreddollars a month. So there’s a lot ofopportunitynow here. But the greedglands are starting to kick in with the seller and they’relooking at market iswide hot right now. They’re looking at Zillow. Zillow saysit’s worth last week it wasworth two. Seventy fivefixed up. Now Zillow saysit’s worth two eightyfive. And they’re likethey’re starting to get a little greed glands. They’re starting to say, like, well, we want more forour property, kind oftemporarily, conveniently forgettingabout theirmotivating situationthat they’re intrying to findways to make more money. All right.

So obviously, you got to understand this, too. When you give aseller options, of course, they’re going to want to sell theirhouse fortop dollar in sevendays for all cash with no contingencies, without doing anywork to it, without fixing it up. And even in thishot market right now, they can’tdo that. And this is asituation where this property needs a lotof work and theseller has forgotten how much work itactually needs. So we’re going to I’mgoing to show yousome numbers here and I’m going towalk throughkind of whatI was presenting tomy friends about howthey should talk to theseller. So I’m goingto share myscreen here. I don’t think this willgo very long.All right. So in this particularmoment, I’m not an artist here, so I’m not going to try to drawanything fancy. But we have this house howzat. That’s a window. That’s a door. That’s a chimney. And there’s smoke. All right.

So this house is in St. Louis in a suburban area, OK? This house wasprobably built in the nineteennineties. So it’s kind of anewer subdivision type ofan area. And theA Rv, which istheafter repair value is about two eighty five. I just want tomake sure if you guys can in thechat type in. Can you see my screen.Let me know. You can see my, my screen here. The after repair value onthis house to eightyfive. All right, good.You guys can see it now.This house needsa lot of work. The carpetis reallystained, the kitchen isoutdated, the the walls are in badshape. And to the non investor, they look at this.They’re going to walk in thishouse and they’re going to be they’re going tothey’re going to have that, in fact. Right. It’s kind of stinky,but really, it’sjustcosmetics. OK, but let’s say I thinkthis house I’m going to tell you, it’s about twenty two hundredsquare feet. Oops. Twenty twohundred squarefeet. It’s afour bedroom,two bath, two cargarageright now in the St.Louissuburban area. That’s pretty good. I mean, this this mightbe able to you might be able to getthis up to three, ten. But it’s in an areathat’s a littleolder. And in fact, whatI think it was builtin the eighties. So let’s fix this here. I’m pretty sure itwas built in thenineteen eighties. All right. So twoeighty fivefixed up. Now, thisproperty needsabout, I’m guessing just from whatthey’ve told me, about forty thousand dollars inrepairs. Forty thousand dollars in repairs. So let’s writethis down forrepairs. I typicallylike todo a property like this. Twenty fivedollarsa square foot. OK, so if you taketwenty twohundred timestwentyfive a calculator, fifty fivegrand inrepairs now I think that’s actually kind of high. So let’s make this twenty. And I just did a rehab on atwo thousand dollar rental property and it was, we spent about 40 grand in it.So let’s do forus do twenty dollars asquare foot. And by the way,you can do this in freedom, soft as well. And I’m going to show you the Rehab Estimatedand Freedom Song. So let’s let’sjust say it’s twenty bucks a squarefoot, OK, and that’s going to beforty fourthousand. Right. Let me just double check. Twenty two hundred times twenty, forty four grand in repairs. I feel pretty good about that.Now the seller owes. Let’s just talkabout what they owe. They owe about one nine. And their payments, p i t i principal taxes, interest and insurance,so that’s the principaland interest, but then escrowed usually bankswhen there’s a finding, when your loan, when you have a loan in a privateescrow, taxes and insurance rate, that iseleven hundreda month andtherent’s about seventeen hundred a month.Also what are you looking at here.I see cash flow write really good numbers there. Now the seller made the they’re motivated.We kind of know what’s going on.

But the seller made the commentjustthe other day. Well, first of all, letme say this.They had talked tomy friends and said they would be willingto sell it for maybe to ten because they know it needsa lot ofwork. Right. But then the lady was looking at Zillow and where thiswas before it. Two seventy five. Zillow says it’s worth about two seventy two.Seventy five. There’s been some recent sales.The numbers have gone up. And so thisZillow valuethat all these sellers are looking at has gone up aswell. And I’m justgoing to I’ve not looked at the comps too much. I’m just going to go with what Zillow says.It’s pretty close, OK? And knowing thisneighborhood, thatsounds about right. So now the sellerbefore was saying they’d be OK with two, 10 or something. Now they’re kind of talking about they want to 20 orsomething like that. So they greedglands are kicking in. And so this is one of the things I told my friends. I said we alwayswant to give the sellersoptions.OK, I recommend this.I mean, this is something that I think is the right thing to do, number one.But I alsothink it plays into your hand, into your negotiatinghand, where you’reand I’m not a sales expert here, but youare, in a sense, removingyourself from the outcome and it puts you in a stronger position when you’re negotiatingwith sellers, because I’m notchasingthem. All right?

I’m not chasingthem. I’ve removed myself from the outcome, but I’m giving them options.And if theyreally want themost for this house, they should fix it up and sell it themselves. If they really wantthe most forthis property, they should fix it up and sell it themselves. So Imight say, OK, well,option one is fix it up and sell it yourself.OK, now what’s involved with that?You need to make sure you let the sellerknow this is how you’re going to get the most money for this property.But let’s look athow much it’s goingto cost in reality, evenin this crazy market, how much it’s going to cost. So if yousell it for two eighty five, let’s say that’s the saleprice,you’re going to have to pay six percent commissions. OK, so let’s look at thatwhen we get mycalculator here, two eighty five times point six, that’s going to be seventeen thousand one hundred. You’re also going to have to fix it up. We already said that’sforty fourgrand, right. By the way, you’ve got to make sureyou find a good this is what I’m telling the seller. You got to make sure you find a good contractor. You need to stay on topof them to make surethey’re doing it right. You need to be sure you’re inspecting the property and all of that stuff.Right. And that’s going to takeyou atleast two to three months. It’s always going to taketwice aslong as you think it’s going to take.And when I just did my rehab, I thought I could do it for 20grand fairy tale. It’s going to be more like it was goingto it was 40 grand is what it turned out to be. So that’s going to be two to three months.OK, now, you’vealsohave carrying costs, right? That’s one thing I do in here. You’re going tohaveunknown’s, contingency. There’s alwaysgoing to be something that you don’tknow about. And I like to use ten percent of the budget, the construction budget. So 10percent of the construction budget is going to beanother forty four hundred dollars. Sometimes I’ll dothat asthe I do it a different way. I’m going to actuallymove that down a littlebit here. Let’s move that right down here. Right now, you’re going tohave carryingcosts fortwo to threemonths. And if yourmortgage payment iseleven hundred, that’s, let’s saythree months. That’s thirty three hundred dollars and carrying costs. Thirtythree hundred and carrying costs. Normally in a normal market, you’re going to talk about the seller. I mean the buyer is going to want some concessions. You’re going to get an inspection, you’re going to have to fix up some things.Right nowit’s not as crazy as it used to be just ayear ago. But still, youshould expect there’s going to be things that the buyer is going to get an inspection are going to ask you tofix after you get it under contract. And usually we can call that inspection costs and it’susually one percentin a crate.In a normal market, it’s like three percent.But let’s just say it’s one percent ofthat’s that’sthree grand. That’s going to be theinspectorsaying, hey, ourFHAis going to say, hey, to sell this,you need to replace the waterheater or youneed to like I just hadfour on mine. The floor is alittle one level in one spot.There was some rebarin the basement. Foundation wall was exposed.They wanted us to epoxy and cover that. Whatever it was they were asking me.This is after weaccepted their offer. They were asking for like it was going tocost us about five grand to doall of this. So we said no to acouple of things and we said we’ll just give you a credit for twenty five hundred dollars. And she was happy with that. And we’ve doneOK. And then there’s alwaysgoing to be unknowns andcontingencies carrying costs,closingcosts, and onaverage that’sgoing to be three percent. But let’s justsay because it’s a hot marketright now, let’s just say it’s two percent to two percent of two. Eighty five. That’s fifty seven hundred dollars, by the way.Realtors should be. Showing allof this to sellers,but theytypically don’t. Sometimes whenrealtors show the net that they actually walk away with,they they only show thecommissions and maybe some fix up costs. They don’t show this carryingcost inspections, unknowns and things like that. OK, so let’s subtract then all of this stuff. OK, so I’m going todo this right now onmy calculator. Two eighty five minus seventeenthousand onehundred minus forty four thousand minus thirty three hundred minus three thousand minus fifty seven hundred equals to eleven nine hundred. And what dothey owe on this property to rememberthey owe one ninety. So if you were tosubtract what they owe,they would walk away the twenty one thousand nine hundreddollarsin true net equity. OK. When I used to doa lot of subjects, I would walk through this exercise on a worksheet. I had this worksheet and it’sin my course. I would walk throughthis to show them what their true net equity is.

So many sellers, they’ll lookat this and say, All right,well, if I if I could sell four to eightyfive and I ownone90, thatis what does that ninety five thousand dollars. I have ninety five thousand dollarsin equity but they forget about fixed up costs, realtorcommissions, carrying costs, inspection costs, unknown’s and contingenciesand things like that. On average,a seller hasto pay 12 to15percent ofwhat they sell it for. That’s to subtract 12to 15 percent to coverall of thesethings, not repairs. And that’s whatthey truly get for the net for the true net equity. So when I used to do a lot of subjectto, I would tell the seller, look, your truenet equity is twenty one thousand nine hundreddollars. One of myoptions to the seller we used to be. I will make sure you get that twenty one thousanddollars if you’re willing to wait for it. So I would buy theirhouse subject to the existingmortgage and I would givethem a I would buy subject to the existingmortgage of one ninety and I would give them apromissorynote to give them twentyone thousand nine hundreddollars when the balloonwhen Ibuy it andcash them out in fiveyears. That makes sense. So and I’ll explain that in a minute here. But option numberone, Mr Seller, if you want themost money, if you want to walkaway with twenty one thousand nine hundred dollars, you need to fix it up yourself and list it and sell it with a realtor.Chances are most of thetime they’re going to realize, no, it’s too much work.I can’t do that. I can’t manage rehab. And they’relooking at thisnumber here. They’re lucky.They they’ll they’ll be able to fix it up and get itsold in three months. And a property thatneeds thismuch work, can they makethree months of mortgagepayments and not get a 30day lateon their credit? Probably not. So now I’mgoing to give the seller a secondoption, too, which is cash, which is what they want. They sellers,they want to sell it with cash. They want to be able toclose quickly and just be done with it. OK, what’s yourwhat’s your cashoffer going to be? Well, we know ourtypical maleformula. It’s going to be RV minus repairs time 70 percent actuallyerI’m sorry, RV time, 70 percent minus repairs minus the and that’s yourmaximum allowableoffer. Now you’re going to look at thatand say the formula doesn’t work anymore in this market. OK, fine. It doesn’t.Maybe so thenchange thisto eighty percent. Maybe if you’re inSan Diego 90 percent. I don’t know, the formula still works. You just need to change this number.Now, let’s just say let’s make this in our case. Seventy five percent. I just don’t here’s the thing. You want to make sureyou have a cushion. You want to make sure you have a margin for error, especially if you’re going to be in the rehab business.If you feelcomfortable doing your own rehab, you can swing yourown hammer. You reallyunderstand thecosts. All right, then maybeyou could do 80percent. But unlessuntil you know what you’redoing, stick withthis 70 to 80 percentrange. All right.

So in our example, the RV and I will let’s do this in green to eighty five times.Seventy five percent equals two.Eighty five times pointseventyfive equals two. Thirteen seven fifty minusrepairs, which was forty fourgrand. Right. Minus you alwayswant to make at least a ten thousand dollar wholesalefee. So you taketwothirteen minus forty four thousand minus ten grand wholesale fee. One fifty nine, seven fifty. Now remember what do they owe. One ninety. That’s not going to work is it. Well doesn’t matter sometimes.I still want to makethis offer because it positionsmy otheroffers that much better.

But I’m not a charity.I’m not inthis business to give awaymy profits. If I offered the sellerwhat they owed, I’m not going to makeany moneyon this thing. If I offered the sellercashwhat they owed. And you take let me just look at this number here. One 90 plus forty four grand plus commissions of seventeen grand. And I’ve gotcarryingcosts andmiscellaneous things for let’sjust say ten. If I’m out ofthe kindness of my heart, offer her one hundred ninety grand because nothing ever goeswrong. I’m going to doone 90 plus. Forty fourplus. Seventeen thousand plustenthousand troops, minus one, plus ten thousand. I’m going to be attwo sixtyone and then afterI sell it for two eighty five, I won’t make twenty fourgrand. Now, that’snothing to sneeze at.That’s a lot of money. But twentyfour grand just only making twenty fourgrand. That’s not even ten percent.Twenty four thousand divided by two.Eighty five. That’s only eightpoint fourpercent profit margin.Return on investment. That’s about onlyabout eight percent on the on that sale price. That’s not enough cushion. There is waytoo much that could go wrong.Even in this hot market. There’s waytoo much that could gowrong. You you don’t want toyou don’t want tobe in that area. You don’t want to do that because twenty four grand is not enoughto buy a house, fix it up, rehab it. Unless you know what you’re doing right.And you’ve got a huge beast to feed.You’ve got arehab machineengine coming that you need to feed, then you could do something like that. But if you’re going towholesale thisdeal and you want tomake at least a ten grand wholesale fee, you need to buy it for onefifty nine and sell itfor one sixty nineto a rehabber and you might be ableto get away with maybe offeringone sixty five. If youbought it for one sixty five and you sold it for one seventyfive, you would need, youwould be able to probably leave enoughmeat on the bone for another rehabberto comein there and fix it up.OK, so this is my option. Number twocash. I’m going to offercash to the seller. Yeah. So you guys are asking me about closing costs and stuff. I figured closingcosts in the closing cost right here were part of this unknown. So this is going to betwo to threepercent would be yourclosing costsand stuff. All right.

Now, remember, we were looking at this. We were looking atthis true the true net equity the sellerhas. If I wasdoing a subject to, I might give theseller, listen, I’ll give youyour twenty one thousand nine hundreddollars trueequity if you’re willing towait for it. I asked theseller some times this question, what if if I would give you the same equity you would get with if you sold with the realtor?Would that be fair if I were to give youthe sameequity you would get if you soldwith a realtor?Would that be fair? A lot of times they’ll say yes. So another option might be option three would be sub to subject to. Now, I’m not theI used to do a lot of subject choose. I’m not theexpert at itas much as that. Guys like Paiste Maubee orViña Jones, by the way, justtexted me while I waslive here. I mean, I’m going tobe doing a class real soon here Saturday workshop with Viña talking about subject, but I would do here maybe somethinglike the same equity. I’m going to write this out as if you sold with a realtor. OK, so Iput in these this would bethe terms. This would be theterms of my subjectto offer to the seller, OK, I would say would take over existing mortgage one ninety. So I would startmaking your payments in today’s June twenty second and start making your paymentsAugust 1st, maybe,maybe even July 1st, depending on howsweet of a deal it is. And I will giveyou yourequity. What did I say. Twenty onethousandnine hundred twenty one thousand nine hundred in five years. And that wouldbe a promissorynote. I don’t know how to spell promissory note. A zero percent interest, zero payments. All right.

So Iwouldbasically give them atwenty one thousand nine hundred dollars promissory note due in five years andfive year balloon was zero percentinterest, zero payments. I wouldn’t be making any payments on that if they wanted. You could godown this other.I used to offer sellers multiple options of subject to and Iwould say something like if you wantif you wanted cash now like this, sometimes they’re going to want cash now to move out.I would say, all right, I’llgive you five thousand cashnow and your equity later would be ten thousand.So that would total fifteen thousand. So that makes sense.I would say, listen, I’ll give you cash, I’ll give you five grand now and I’ll give you ten later in five years at zero percent interest zero payments. That makes sense whatI’m saying there. So I wouldgive the seller if you want some cash now, I’ll give you some of yourequity. I’ll give you fifteen grand ofyour equity right now.Another option you could giveto the seller, option numberfour would might be a lease option.OK, now, again, I’m notnecessarilygiving the sellerall of these optionsat once. And the way I typicallydo mylease options, I like to do sandwich lease options. Typically my rule of thumb there is I want to at least let me fix this here.I want atleast 15 percent equity and at leasttwenty fivepercent cash flow. Let me tellyou what thatwhat I mean by that. So typically the way Ilike to do it is the as isvalue is what, two eighty five minus forty four thousandtwenty five minus fortyfour thousand.

So the asis value is about two fortyone and I wantat least 15percent equity times that by eighty five percent to go for eight fifty. That would be my option price and my rent is going to be eleven hundred a month. So I’m just going to make a payment. I’m going to maketheir mortgage payment of elevenhundred a month and my term, I’m going to try toget fiveyears and my option consideration is going to be I’ll give themwe give them twentyfive hundred dollars. So we give them twenty five hundred dollars. All right. Makes sense.

Option pricetwoor four paymentsof elevenhundred five years. Option consideration of twenty five hundred dollars. Now let’s justreview theseoptions again real quick here so you can kind of see what I’m talking about. Option number one, I always give this to the seller, fix it up,sell ityourself that wayagain. They can never accuse you of takingadvantage of them because yougave them the options. You told them if you want to make the mostmoney, fix it upand sell it yourself. I contrives realtors I canrecommend to you. Maybe they can help you. Option number two, I’ll buy it for cash, but I’m going to buy it for you. But let mehighlight thesethings so I can look at it laterhere.Option number one, fix it up, sell it yourself. You’re going to walk awaywith about twenty one thousand nine hundred truenet equity.Option number two iscash and I’ll buy it for one sixty. One sixty you could do is subjectto in the way I like to do, subject to when I’m presenting my offer is I’ll give you the same equityyou would get. The same equity you’d get is if yousold what the realtor and I’d walk through all ofthose costs and I’ll show themthat they have about twenty one thousand nine hundredand true equity.

And so myoption forthem would be not Iwouldn’t be giving them a price.This is important to understand. I would notpresent I would not be presenting the subject toto them in terms of Ibuy fromyou for this. I’m just telling themI’m going to buy it from you,for you.I’m going to give you the same equity you would get if you sold the realtor.I’m going to give you twenty one thousand dollars in equity in five years. I’m going totake over your mortgage. I’ll start making your mortgage payments.So really, ifI’m buying itfor twohundred and twelve thousand dollars. Right, I’m buyingit for twelve, but I’m not positioningit that way. It’s they’re thinking it’s worthtwo eighty five and I’m making them ridiculouslylow off of it to eleven. I’m just selling. I’m going to give you the same equity you would get if you sold it.The realtor, you’re just gonna have to wait for it. Does that make sense. Oh it’s my son.My son just texted me. They were they’re flyingto San Diego and they justhad they just landed in Salt Lake City. So this is the first time my two sons are seventeenand sixteen have flown by themselves and they’re flyingto see grandma inSan Diego. And they’re sayingit was good. Nothing eventful toreport. We are still in our seats on the on the plane. I’m just nervous. My my wife and I have been kind of a nervous wreck.They’re 16 and 17 year old boys. I mean, they’re almost adults.And why arewe freaked outabout this? We’re not doingthe the thingwhere the the flightattendant has to stay with them the whole time and they get a wristband and a name badge and all of that.We’re not doing that. So they haven’tthey have an hour and a half layover in SaltLake City. And so we’ll be endingthis soon because I want to give them a call ina minute. All right.

So youunderstand option three subject to they’re going to give themthe same equity they’d sell ifthey sold it. The realtor. I’m notpositioning it. I’m not givingthem a price. I’m just telling them I’m going to giveyou twenty one yourequity in five years. If they wanted some cash now, I might say.All right, well, I’ll give you five grand now. And instead ofgiving you twenty one thousand,I’ll give you fifteen thousand foryour equity. I’ll give you five thousand now. Ten thousand later. Does that make sense. So that’s anotherway you could position thesubstitute then the other option is the lease option. Option.OK, and you can see a lot of these, the price kindof goes up depending on thelonger they’re willing to wait forthe sandwich lease option. I’m going to do eighty five percent of the as is value. So I’m, I give themtwenty five, minus four.I’m going to offerthem two or four.Eight fifty. My option price to a forty fifty. I’m going to offer them eleven hundred a month and rent five years. Twenty five hundred dollars down. Now I might be willing.This is a great thing aboutlease options because Ican negotiate several things in thiscountry. Let me show you. Hold on here. Let me show youthe differentthings I can negotiate, I can negotiate the option price, the rent, the term or the optionconsideration. And there’s actually even a fifth thing that I can negotiate.Right. And that’sgoing to berent credits. So once weget down this road and there may be open to doing a leaseoption, but you know what?They’re stuck on this price.They wantsomething more. They want theywant to twenty. What if they wantedto twenty on that.

Well, I could say I can getyou to twenty, but instead of fiveyears, we’re going to need to do sevenyears insteadof twenty five hundred down. I’m going todo zero instead of elevenhundred a month.I’ll do a thousand a month. Let’s say you know what they knowit can rent for seventeenhundred. They want, they wanttwelve hundred a month.

And I’m asking all right I can get you twelvehundred a month in rent. If we instead of five years do eight years instead of twoor five we’ll do one ninetyfive so I cannegotiate or even better sometimes you could do rent credit so they, if they want anextra two hundreda monthin rent I might say. All right,well I can get you two hundred extra month and I’ll pay youthirteen hundred.But what if you gave me. You always have to give and take. I’ll give you something if you give me something back.What’s the phrase I like to use. What if I could.What would you do then.Know what. How does it go in my leaseoptions, of course, I talk about this a lot in negotiating and talking with sellers and I forget the phrase that I uses, but I’ll come back to me in a minute if then it’s kind of like anif then statement. All right. If I couldget you thirteen hundred a month in rent, would you give me two hundred dollars amonth rent credit at the end if I payyour rent on time.

So if I’m asecond late I will notgetthat rent credit. So I’m going to havean incentive to pay the rent on timeevery month. So I’ll give you thirteen hundred. You give me atwo hundreddollar credit if I pay the rent on time every month. So the cool thing aboutlease options now is you can negotiate these five different things. The option price to rent the terms, the option consideration, the rent. What’s most important to the seller? If the seller wants more moneydown, maybe I’ll do that. Lower the price a little bit, get some rentcredits,extend the term, lower the rent. So it justwhat’s most important to the seller priceor terms, price or terms.All right.

Now some of you are asking this property needs alot of work. What are you going to do?Are you going to fix it up? So if I did alease option, option number four on it or if I didasubject to on it, would I goin and do all the work? I don’t know.Probably not. And I’ve done this a lot.I’ve done a lot of lease options where Ibought it, didn’t do any work to it, just cleaned it up. And then I turnedaround and advertised it as a handymanspecial. So whether you’re buying iton a lease option or buying it on asubject to or evenbuying it with bank financing, I would still probably turnaround and sell it as a lease option. Handyman special lease option right now. What would I do? Let’s saylet’s just look at somenumbers here. Right.So the our of thishouse is twoeighty fiveand the repairs, I figureif I’m going to do it myself, they’re going to be forty four grand for the rehab. I mean acontractor. Right. So that putsthe as isvalue at two forty one. Right now the house is worthtwo eighty fivefixed up so I’m going toadvertise it. This is what I’m advertising. Let me two different color here. This is probably what I would do. An advertiser as ahandyman special lease option. I would do five years. Why are all right.

I remember therent on thisthing. Rents for seventeen hundred a month. Now there’s two ways youcould do this. You could do a work for equity credit. You could set the optionprice at twoeighty five and if theybuy it you’ll deduct forty four grand. I prefer justto set the option pricelow. So what I’mgoing to doinstead I’m going to say allright optionprice was do to sixty five Mr.. To Sixty. So this house is worth two. Eighty five fixed up market is appreciating. It’s going up. I’m going toset the option, price itto sixty and I’m going to dothe rent. Remember the rents are seventeenhundred a month. I’m going to do the rent at let’s just say 15 fifty a month and theoption consideration for the down payment.I’m going to want, I want to get at least seventy five hundred on this. Do you think, do you think I would findsomebody that would take this property and fix it up themselves.Yes, I would get tons of calls. Every time I’ve done a handymanspecial lease option, I’ve been blownaway by how many callsI actually get on the property because they’re looking at this thinking, all right, well, it’s there’s about twenty five. They’re looking atthis thinking there’s twenty fivegrand inequity there. I can get it fixed up and choosemy own carpet, my own colors, my own counter tops. I can do the labor myself. I can probably justmaterials would be fifteen grand. You know, I mightactually just looking at this I might lowerthis a little bit.Sometimes you just don’t know and that’s fine. You can always adjust the price if you’re not getting anyinterest becauseyou’re asking way toomuch then lower the price. But they’re lookingat this thinking.

All right, well there’s thirty grand in therethat I could spend onin rehab. It’s only going to cost me fifteen in materials and I can do all the work myself.They’re looking at thisas an incrediblebargain and they get to pick their own colors, theirown carpet, their owncounter tops. They’re going to love this. There’s a lotof people out there that can fix it. These fix these homes up themselves. There’s a lot ofcontractors that don’thave thecredit where they can get amortgage right now, but they can come in and fixthis house up. And my rentis one hundred and fifty dollars less a month. So they couldn’teven even if theycould get amortgage, they’re rentingthis forcheaper than they couldif they got a mortgage and theycouldn’t get one anyway. And I want to makesome I want to make surethey have some skin in the game. So I’m going to put seventyfive hundred dollars down, which is nonrefundable. So what happens is you’re going to you’re going to get a lot ofcalls on this handyman special lease option and you’re going toit’s going to fly off the shelf.

You’re going to get the look at this. I’m making it attractive. I’m giving themequity. I’m giving them low rent.I’m givingthem five years. They get to fix it up themselves.And I amrequiring some skin in the game. Now, this is the way it works. You need to make sure you spell it out and the lease optioncontract all thework that the tenant buyer hasto do before they move in. And in St.Louis, we have an occupancy inspection. So the city has to inspect it. They have to. So it has to be inspectedbefore they move in. They have to make sure theypull all the right permits and everything like that.Yeah, it’s a great way. And what happensif they don’t buy it in five years? Well, I get a house back that’s in better shape than it was before.All right.

So I need to get going. I want to see. If there’s any questions here before wewrap this up, let me just say onemore thing. I wanted to explain this again. If I didn’t already,I don’t like givingsellers all of these options at once. Sometimes giving them all of these options at once can confusethem and overwhelm. So I liketo give sellers just one option at a time. Number one, you should probably just listed andsell it with a realtor.I don’t want to do that. I can’t do that. I don’t have the time. I don’t have the patience. I don’t have the money. I don’t know how to do the real.All right. So I might be able tobuy it from you for cash, but I can guarantee you it’s going to be less than whatyou owe. And I’m not going to beyour highest, bestoffer, but I cangive you cash offer, whatever I saidhere, about onehundred and sixty hundred and seventy thousand. That wouldn’t work for you, would it? No. One ninety, whatever. Like thatone.

OK, so the other thing I could do is I couldbasically and I don’t want to use technical jumbo language, I want to use simple language. I could take over your mortgage, I could start making your mortgage payments for youand I could fix it up and then buy it from you after I get itfixed up and after I sell it tosomebody else.And there’s there’s so many different things that you can negotiate with the sellers. If they’re at that point where they don’t want the cash, they can’ttake the cash, they don’t want to listen to the realtor.The next best alternative is I’ll take over the mortgage. I’ll fix the house up. I’ll take all the risk offixing the house up. All right.

And I just needyou to carry thefinancing for a little bit, whetherthrough lease option or subject to I’m going to get somebody in the house is going to fix it up. I’m going to manage it. I’m going to take care of home and take all the responsibilities. I’m going to guarantee that your mortgage is being paid every month.If the sellerobjectsto that, you couldstilloffer somekind of partnership with them. And I’ve done this before. I’ve told theseller, listen, ifthey object to my offer,no, it’s not going to work. I say, listen, I understand. What would it befair if we maybe share some of the future profits on the deal? Oh, now you’ve got the seller on yourside and canpartner withyou on this deal. And so you can just structure where.Listen, we’ll share some of the profits. I’ll give you twenty five percent of myprofits at the endof the day in three or four orfive years. Then they’re on your team.They’re on your side. They’re going to be lessconfrontational duringtheir during the fiveyears. You know, and I know one guy.I interviewed him on my podcast. His name is Rick, and he does this with everysingle deal he offers tosplit the profits, share the profits withthe seller. But he it’snot like he’slosing money, though.He’s just negotiating bigger discounts. He’s negotiating alower price and better termsbecause now he’s sharing the profitswith the seller.And it’s much they’re much easier to negotiate these deals. Right. Then you canget the sellers to be more willing to help you takepictures,give you extend thecontracts if you need it, give you more time. Another thing that you can negotiate to, by the way, if they’re if they’re stuck on theirprice is you couldsay, all right, well, I can get youthat price, but we’re going to need toif they can’t lower the rent or whateveryou could say, I will give youthat higher rent. I’ll give you that higher price. Except if the house isvacant, you’re goingto have to makethe mortgage payment. If the houseis vacant or if the tenant I put in theredoesn’t pay the rent, you’re going to have tostill makethe mortgage payment. Right. That’s a way you couldpartner with the seller. You can say,listen, I’ll we’ll split the profits, but I need you to cover the mortgage.If the house is if I don’t collect the rent, you’ll need tocover the mortgage payment so you cando all of that is so negotiable.Isn’t that cool? All right.

Just real quick, let’s see if we’ve got a question.Good question. From and how do you pay the seller at the five year balloon? I’m a handyman special. All right. So a couple of things.You hopefully ideally, you get the tenant buyer thatwill then we’ll be able to buyit with cash you out and you’ll just doa double close to thebuyer. We’ll buy the house andthen you’ll sell.You may need to close onit first, take ownership ofit and thenturn around and sell it, but will be enough equity. You can get a privatemoney, you can get transactional money, you canget hard money, you can get a bank loan. You mayneed to buy it subject to actually take the deed for two or three months to cover theseasoning issues and then sell it. Now, worst case. Worst case,the buyeryou put in the house doesn’tbuy it in fiveyears. Then what do you do? You could buy it. You could buyit yourself, because there’s going to be a lotof equity in there, a lot ofequity. You shouldn’t have any problem getting bankfinancing or private money on that house. You could you could buy it yourself. You could go ahead.Maybe if you have six months left and you know you’re not the buyer is not going to buy it. You could just listed on the MLS andyou could sell it in fiveyears. It’ll probably be worth, I don’t know, three twenty five.Three fifty. So you could sell iton the MLS. You can get bank financing or worst worst case, youjust walk away. That’s why I loveabout lease options. I have the option to buy it. I don’t haveto buy it. What if themarkettanks, you know, andwe go into deep depressionor whatever? Well, I can just I just walk away, OK,that’s the way it goes. You’d have to deed the property back to the seller if you bought it. Subject to what? If it’s a lease option, you just let your lease and your optionexpire and the seller takes the property back. No harm, no foul.You’ve been getting five hundred dollars a monthin cash flow for the last five years. Bam, there you go. All right.

So hope you guys are doing well.I hope you got somevalue out of that. Listen, if you wantto know how more if you want to learn a little bit more about how to do these kinds of deals, I want to invite you tojoin Partner With Joe. If you’re going toPartnerWithJoe.net, there’s a 30 day course in there that shows you the fastest, easiest ways to do yourfirst deal in 30 days or less. But go toPartnerWithJoe.net. I got some really cool thingsI’m going to give you. For free, if you’re part of that, I have asoftware that helps you create these kinds of offers. I didn’t even show you thesoftware, but the softwarehelps you create a cache of four differentcash, offers different leaseoption, offers different financingoffers, and that’s included with the program.

So go check out PartnerWithJoe.net right now.And I also will lend money on yourdeals and might partnerwith you on somedeals if you want. You don’t have to partner with me, but go check out PartnerWithJoe.net. Now, ifyou’ve likedthis, I just want toask you to please subscribe to ourYouTube channel, go to YouTubeto search forJoe McCall.Watched my videos in there. I’ve got a lot of good stuff in there. I do these every week,if you like. What I’vegot here for you, go to YouTube,subscribe to the channel and reallyappreciate it and go checkout PartnerWithJoe.Net.

If you subscribe to PartnerWithJoe.net, you’ll get mybook. I have a book called Secrets Daily Nuggets of Real Estate Investing Wisdom.You can get itif you join PartnerWithJoe.net, justseven bucks a month. It’s a great book. OK, all right.There’s so many good stuff in there.You guys go check it out. We’ll see you guys.

I appreciate you all very much.Take care. Bye bye.

What are you thinking?

First off, we really love feedback, so please click here to give us a quick review in iTunes! Got any thoughts on this episode? We’d love to hear ’em too. Talk to us in the comments below.

Enjoy this podcast? Share the love!

Related Posts

Leave a Reply


Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}