What Do I Say When The Seller Says “No” Because They Are Afraid The Buyer Won’t Pay?

Read Transcript for “What Do I Say When The Seller Says No Because They Are Afraid The Buyer Won’t Pay?”

 
Joe: Alright, this is the second part of Julie Oten’s question. Julie says,

“I recently had a signed leased option agreement seller back out of a deal before I could find a buyer because the husband feared not being able to cover two mortgages should the tenant buyer move out and not buy their house. Since I couldn’t quickly find them a buyer the first time, this led them to ask what would happen if the tenant buyer backed out, leaving them two houses to pay for. I guess I didn’t have a good enough answer for them.” – Julie Otens

Joe: Well, if the tenant doesn’t make his payments, you have to evict that tenant (not you but them) and you’re going to have to recommend a good attorney for them to do that for them and during that time, they’re going to have to continue to make the payments on their property, so there is that – it is a problem. It’s not something anybody wants to happen. It does happen sometimes and they would have to deal with it if that situation arose.
 
Joe: But, let’s look at their options. It always comes back to, ‘I don’t want to do this’ but what are your other options? Do you have better options than that? If you have a lot of equity in that property, then maybe a better option for you would be to hire a real estate agent and pay that agent 10% of the property value, taking a chunk out of your equity and doing it that way.
 
Joe: Now, I think that 10% that you’re paying the realtor is a lot more than you’ll ever lose in vacancies, but let’s say you want to do it that way and not have to worry about that headache. That’s okay. If it’s just the headache you’re worried about, then it’s just a matter of getting a property manager. If it’s a problem with making the payment – if you can’t sell this property at all, does it make sense just to stay in that property and is it possible to stay in that property? Otherwise, you’re going to have to sell it.
 
Joe: If you have to sell it and you don’t have enough equity, then you’re going to have to come to closing with money to pay your realtor or you’re going to have to pay out of your equity to pay your realtor to do that. So there’s always the possibility that this could happen.
 
Joe: You can give them the other option. You can say, ‘Well, why don’t you just deed the property to me? I’ll promise to make the payments for you and I’ll worry about whether the tenant makes the payments.’ That’s taking the property “Subject To” and keeping it long term and building your portfolio and making a great profit that way. Then you get the lease option fee which you can put into a reserve and if you have a vacancy, you can use the lease option fee to cover that vacancy time.
 
Joe: After you get a few of those, you don’t have to keep every one of your lease option fees. You just have to keep enough to keep a 10% vacancy rate going at any particular point in time. So if you have 10 of those, and you made, let’s say $5,000 per property, and you made $50,000 on 10 properties that you bought in the year, and if at any point in time one of those that’s vacant, all you need really is to keep $5,000 or $10,000 in an escrow account for your reserve so that you can make sure that you can make your payments every month, and then you’re not going to have that problem.
 
Joe: So, when you’re talking to sellers, it’s about their options. If you understand what their options are – go to the lead sheet in the Automarketer and in the lead sheet, there’s a little button that says seller options. You click on that and it’ll explain piece by piece what all of the seller options are, i.e. sell with a realtor, sell it dramatically under market value, sell it on terms, sell it on a lease option, sell it on a subject to, sell it on a land contract, etc. – all of those things and more are defined in those seller options and its really worth reading through that process so you’ll understand how it works.
 
Joe: Alright, that’s question two for Julie. I’m actually going to do a couple more videos for you just so that I can make sure that I cover all of your questions this time. Thanks. Talk to you next time.