By Ron LeGrand – In our last article we talked about constructing offers, so now we have to decide how to present them. The first step is to decide what your offer’s going to be. If you’ll remember, you can either lease-option the property from the seller, you can buy it with owner financing, you can take it subject to the underlying debt or sometimes you can pay all cash when you’re dealing with FSBOs.
You make this call by looking at the math on the property information worksheets as we discussed last month and deciding what your exit strategy is going to be. Are you going to stay in the deal or get out of the deal by flipping it on an ACTS?
Your next step when you can get a yes on the property information sheets is to pick up the phone and call the seller to verify the facts you have are correct and to have a preliminary negotiation of what the seller has in mind.
This is where scripts are very important, and you must get to the bottom line as to the seller’s true intent before you can make an appointment. Many people who are new in the business go ahead and make the appointment without being clear about whether the seller’s really motivated or not. And even if they were sometimes, it’s not clear what we’re going to do when we get there even if the seller is motivated. So before I go any further, let me back track just a hair.
If the seller says “I will sell the house for what I owe on it,” you have a couple of options. You can either take over the debt subject-to or you can lease-purchase it. Your decision will be based on whether there’s any equity left in the property, whether you see a monthly spread on the payments and, in some cases, the closing costs if you decide to take it subject-to and the seller is willing. For example, if you live in Maryland you have a 3% transfer tax, so taking over a $200,000 debt would indicate $6,000 just in transfer fees. There should be a lot of equity in this deal for you to consider that. However, if you lease-option it there are no transfer taxes thus no closing costs, so that might sway your decision.
If the seller says “Yes, I will consider a lease-purchase,” then you have to call and confirm that and then discuss if they’re okay with your rent being the same amount as the underlying payment, then the price. Sometimes there is a lot of equity in the property and the seller is going to want a price considerably higher than that. And if so, you’re probably leaning more toward an ACTS deal if they leave little or no equity in the property. If they will leave equity in the property because the market value that you have investigated is lower than the asking price, then you may want to stay in it on a sandwich lease-option or, in the case of getting the deed, stay in it and sub-lease it out to a tenant buyer.
And then, of course, if the seller says they will accept monthly payments that opens the door for owner financing, which is my favorite kind of financing, and I simply want to know if they will take little or no down payment and a small monthly payment. I’ll likely stay in the deal and create an instant payday from a lease-option deposit from my tenant-buyer and a monthly spread for a lot of years to come while owning the property. If they want retail price and a higher payment and/or a down payment I’ll likely sign it up and ACTS it and just get an assignment fee.
See More: Ron LeGrand: How to Locate Prospects
Now, I know I went through that pretty quickly, but you must understand what I just said in this previous paragraph or you will not be able to adequately prescreen prospects and construct deals much less present them to the seller. Of course, if you do not understand this, the smartest thing for you to do is to get to my Quick Start Real Estate School as fast as you can and spend four days doing nothing but making sure you understand how to process these leads after you get them.
I will confess the hardest job we have with students is not getting them to this point but to get them to the house and get an agreement signed largely because they’re a little unclear on what they’re trying to accomplish. Once you pass that hurdle, the rest is easy. You can screen them in seconds. You can make the calls in minutes and set yourself up with appointments to go out and get the contract signed. And until you do, not much else is going to happen.
Caution: be careful not to do too much negotiating while you’re on the telephone. All you’re trying to accomplish is to make sure the seller is motivated and to find out what’s on their mind as I previously discussed. This is not the time to get into the nitty-gritty details and scare the seller off with too much conversation prior to a face-to-face meeting. If they’re motivated and flexible, go. If they’re not, don’t go. But, don’t work hard to talk yourself out of a deal because you don’t have all of the answers. Sometimes, you need to get to the house, make the acquaintance and get a relationship going first. That makes it easy to open up the conversation to get to the bottom line on many of the deals.
Once you get past this hurdle, your next job is to make an appointment. I’ve included an appointment script below, and I suggest strongly that you use it. If you’ll take a look at it you’ll see that I want to know if the person I’m talking to is the only owner because if you go to the house and both owners aren’t there, you’re wasting your trip and probably creating a problem for yourself. Can you imagine one of the sellers trying to explain this to the other seller after you’re gone? So, don’t go unless all owners are present. If you do, you can’t leave with an agreement because all owners have to sign the agreement or you don’t have an agreement.
Get Your Appointment Script: http://www.ronsgoldclub.com/present-mats
You also notice that I point blank ask them, “If I come out and look at your house and I like it and you like me, are you ready to get the paperwork done while I’m there to sell your house today?” If I don’t get a yes answer to that, I am not going. So, the smartest thing for you to do is use the appointment script provided and make the appointment so you won’t be making trips to the house for nothing.
Okay, now we are out at the house. Next step is to ask the seller if you can take a quick look around and do just that. I don’t spend more than three minutes walking through the house taking a look at it. Please do not make any comments if you see anything wrong with the house. You’re not there to downgrade the house. You’re there to either buy it or lease-option it, and you don’t do that by upsetting the seller. I’m sure that most sellers are clearly aware that their walls need painted, and whatever you see, they can see as well.
Once you’ve looked around, the next step is to ask them if they have any questions. You’d be surprised what happens when you let them do the talking and you not doing the seminaring. Simply ask them if they have any questions. If they do, answer them shortly and to the point but simply enough so that anyone can understand them. If they don’t, then the worst thing you can do is start rambling off at the mouth and create questions by trying to deliver a real estate seminar. If they don’t have the questions, don’t answer the questions. If they have the questions, answer the questions.
Before you leave, you must make sure they understand the facts even if they don’t have questions, I always want to make sure I’m clear on what my intent is. For example, if it’s obvious it’s an ACTS deal because it’s overleveraged or because they’re asking retail price, you should have told them on the phone before you went out that your intent is to get an agreement and then find a tenant-buyer that they will approve. If you do that, then your conversation will be short and sweet at the house. But, don’t sign up an ACTS deal and leave them with the impression that you’re going to personally close it and start making payments. If you intend to stay in it on the sandwich lease-option deal, you must discuss when you’re going to begin making payments. In this case, you are going to agree to make them sometime in the future. I suggest that you get at least two months, probably three. You should also discuss the price here. This is your opportunity to lower the price if there is equity in the property, and, in fact, if you don’t do this, you can easily be paying thousands of dollars more because you chose not to take a few more minutes and work hard at trying to drive that price down while you’re sitting in that seller’s home.
You should have asked them on the telephone if that’s the least they can take, and if you get that answer, fine, get out there and work them down when you get there. It would be a smart thing to take some comps out to prove your case especially if their asking price is higher than market value. Even if their house is at market value, I would still think you would want to take them some low comps to encourage them to reduce that price. That’s the case whether you’re lease-optioning it to stay in it and/or if you’re buying it with owner financing. Both of these are long term agreements, so right now is when your best negotiation efforts should be applied while you still have the seller’s ear. It’s very tough to negotiate after you’ve closed it.
In the case of the owner financing deals, I’m always going to get two to three months before my payments start. It’s not an option. I just don’t want to buy the house if I don’t get that time period. And, of course, your discussion is going to come into play about the down payment if it hasn’t already. Be careful not to ask them how much do you want down. That indicates you will give a down payment. Your question is “I assume you will sell it with nothing down?” If their answer is yes, you just got it with nothing down. If their answer is no, then your question is “What is the least you would accept down?” The answer to that question will determine whether you’re going to ACTS it and get out of it or stay in it because you got it with little or nothing down. If the seller’s required down payment is too high, then your only objective is to go find somebody who will pay more because of the easy terms you’re providing and get an assignment fee. If their down payment is little or nothing, then obviously you’re going to find the buyer or the tenant-buyer first and close simultaneously and give the seller whatever down payment you agreed at the time you collected the money from the buyer. Or, in many cases, I’ll just go ahead and close it since there is little or no money involved and take the pressure off. I’d suggest you do the same because you never know what can happen between the time you get a contract and the time you actually send the seller to closing with your attorney.
When the deal is sweet, close it quickly. Don’t wait until you find a buyer. The monthly payment, of course, has to be negotiated before you leave, and this is your chance to get zero interest. My line for that is “I’ll pay you X number of dollars until paid.” I don’t ever bring up the word interest. And, if they don’t bring it up, I just write the contract up and put zero where the percentage goes in the “interest” blank. If they do want interest, I’ll never name the number, I’ll let them name it. I’ll always say “What interest do you have in mind?” Then I’ll say “Is that the best you can do?” Then I’ll work them down as low as I possibly can.
So when you get to the house, simply fill in the blanks with the few numbers you have to negotiate, and once you’ve done that, you’ve presented the offer. Now it’s time to sit down and either write the contract or it should be written before you even arrive so all you’ll need to do is fill in the blanks once you arrive at the final numbers.
That’s really all there is to presenting offers. Once that’s done, you make arrangements as to when you’re going to close and make sure you and the seller have an agreement as to when they’re going to move out and what condition the house is going to be in when they move. Once you leave with the contract, you are then ready to go to the next step which is follow-up. We’ll talk about that next article.