Let’s Play the Creative Real Estate Structure Game

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  • Who wants to play?

    Every Sunday I will post a new potential opportunity that just falls in your lap. You’ll get preliminary information, then I’d like for you to come up with TWO ways to solve the real estate problem. You need to describe both your entrance and exit strategy in detail.

    Who wants to play?

    Here’s the first one:

    You get a call from a young lady who lives in California. She has inherited a house in Oklahoma and has absolutely no interest in going to Oklahoma or the house. It’s a 3 bedroom 2 bath house that was owned by her Aunt. Zillow shows it’s worth $145,000. There is no mortgage and no taxes are owed. It has probably not been updated in 20 years. Google maps show it’s a nice looking brick house in a nice looking neighborhood. The neighbor has the key. The seller, we’ll call her Jill, would like to get an offer asap before she lists it with a real estate company.

    What would you do?

    Post your answers below. Remember the details!

    There is no one right answer.

    Hi Jackie,
    Hi, I am new to this group. I am giving 3 options instead of 2 as I have been focused on Wholesaling this year.

    Off the top of my head, here it goes…

    Seller in CA, probate
    House in OK
    3bd 2ba brick
    Needs updating
    Zillow price 145k
    Nice looking, nice neighborhood
    No mortgage
    No taxes owed

    Offer 1  full price offer if 145 kon Lease option 5 yrs interest only pmts of 1289 with 500.00 deposit

    Exit strategy
    Sub Lease with 4yr option to buy at 160k to tenant buyer  1689/month
    With 16k deposit min

    Offer 2 ARV 199k
      – Repairs 25k
    – holding costs (15k × 6) 9k
    – insurance 1k
    – profit 25k
    Mao = 140k
    Exit strategy 2
    flip it  for 199k

    Offer 3 wholesale
    145k x .73 = 104,250 to buyer
    Exit  strategy  wholesale it
    -10 k fee 94250
    Mao Offer 94250

    This will be fun to see what others say..

    Hello group,

    First, we would have attempted to gather some more information and see if they are interested in a structured deal and take some time to explain the process before sending out a 3 option LOI. We would not assume that a seller who has an asset of 140k plus in their possession and not willing to take a 2 day trip to see it for themselves would know the benefits of cashflow or how to make wise financial decisions.

    Let’s say they are open to payments, then 3 option letter of intent would work well. We would send it within an hour via electronic signature.

    From the details provided and no other info, Our Company would provide a cash offer somewhere around their desired price, inspect the property, renegotiate if needed, find a private lender to do the deal after we determine the proper exit strategy and have a workable deal, she does not appear to want any ties to the property.


    Would you go visit the property or hire someone to inspect it to see the actual condition?

    How would you do marketing for a buyer?

    Would one of your offers be a little cash now then monthly payments? Of would you only make cash offers?

    Some sellers want/need cash now but some sellers are perfectly happy with monthly or even annual payments.

    Did you know if you make TWO offers the seller is more likely to pick one of them! If you only make one offer, the seller will either say yes or no.

    If the ARV is correct, then I would offer 70% less the cost to rehab. Shooting from the hip, I classify a property as Bad, Really Bad, or God Awful
    Bad. Rehab cost in my area would be $15, $25 and $50/square foot respective to condition. That would be my cash offer. If that doesn’t meet the wants or needs of the buyer, I would offer higher with no down and the balance payable for a 100 months. Maybe some down with 100 month payment plan. They want their money sooner, then I structure a balloon in 60 months. This allows the principle to be paid down to a point where a refi works. Payment has to be around the rent amount.

    Other ways would be to structure a two note offer.

    Good exercise.


    Major issue is how far away is the property. I would then use a contact to get a curb appeal appraisal. or id=f near I would go my self. Zillow is the wrong place to look for value. If far away is a flip type or 1031 deal. if near then maybe a rental. Depending on the exit strategy a 20 year upgrade could be between $30,000 to 60,000. So here are my offers:

    Immediately Option to purchase with the financial terms to be determined 1 week after inspection, Inspection to take place within one week of signing option.
    2. After Infection depending on the numbers
    a. Full price offer of $145,00 at $400 per month until paid in full ( I am figuring rent of $1100 per month)
    b. 60,000 all cash
    c. Lease property with auto renewal for $500 per month for 5 years
    They kety is what is she going to do with the money? You need to know because she very well might like a long term income stream

    Prentiss, SMART MOVE to tie up the property with an OPTION first then figure out the numbers later. That way she won’t shop the deal to others or sign a listing agreement.

    Anyone else??

    Come on folks let’s put on the creative deal structuring cap?

    What would you do if you got the call about this property??

    Jackie – what a great idea. Thank you.

    Prentiss – great recommendation to tie this up with an Option on the front end. How would you set the terms? A 30/60/90 day ROFR?

    Here is my take with the info available:

    1. Entrance – If it is live-able but not updated, secure an option to purchase with strike price at 80% of fair market value with a 30 day renewal for $100 every 30 days. List it flat fee MLS at 10% above the Zestimate. If the market it is in is anything like the market I am in, it’s gone on Day 1.

    2. If seller wants to be cashed out, she’d be getting a wholesale level cash offer and a quick close. This way I’d have the opportunity to wholesale, good margin on a fix/flip, and likelihood of being able to BRRR with none of my cash left in deal.

    The exercise really points out how important it is to ask the seller questions, understand motivations, and see how open they are to creative finance.

    I would pay for an inspection on the property, no visit personally.
    I would contact local mortgage brokers, realters to see if they know of any potential Tenant buyers who don’t qualify for bank financing but who have ok credit, a nice down payment and want to build their credit, then refinance in a few years.


    Assuming that true market value is really $145,000. What would your offer be to the seller?

    I’ve found that it works better to ask a lot of questions instead of just making an offer. My conversation might go like this:

    Me: Thanks for contacting us about the house you want to sell in Oklahoma. I’m so sorry for your loss. When was the last time you were at the property?

    Seller: Thank you. I was at the property 5 years ago.

    Me. What kind of condition was the property in when you saw it last?

    Seller: It was very dated. And my Aunt had way too much stuff in the house.

    Me. We specialize in working with houses that need a lot of work. And we can take care of getting everything out of the house. You won’t need to come to Oklahoma. The paperwork can be sent to you for closing. If could get all cash and close within 30 days, what’s the least you’d take?

    Seller: I don’t know really, I was hoping you could just make me an offer.

    Me. Well, zillow shows the house is worth $145,000 in perfect move-in condition. But it sounds like your Aunt’s house needs quite a bit of work and needs to be cleaned out. That could cost a lot of money.

    Seller: Yes it needs a lot of work and is full is stuff. A lot of things need to be replaced in the house. I can’t imagine how much all that would cost. Here in California, it would cost $100,000 to get the property in good condition. I don’t have the money to fix the house up. And I can’t possible go to Oklahoma to take care of it. I could just call a real estate agent to sell it as is.

    Me. We can buy it “as is”, take care of all repairs, and getting the house cleaned out. You won’t need to spend $100,000 to get the house ready to sell. Our objective would be to get the house fixed up then resell it. By working with us, you can avoid paying a real estate commission.

    Seller. I was hoping I could find someone to just take care of everything

    Me. Would you be willing to wait to get paid until we got the house fixed up and sold? Since it would take a chunk of money to fix up the house, it would help us out of we could pay you after it is sold.

    Seller: I’d really like to get some cash now, is that possible?

    Me: How much cash do you need now?

    Seller: I’d like to get at least $15,000 so I can pay off some credit cards.

    Me. What would be the least you would take if we just paid cash for the house now?

    Seller: I guess because it needs so much work, I’d be lucky to get $75,000 cash.

    Me. Is that the best you can do?

    Seller: Well I guess I could take $70,000 if I don’t need to pay any costs. (NOTE, I did not make an offer, I got the seller to name the price)

    Me. It sounds like the house needs a lot of repairs that will cost a lot of money. and we might need to get permits from the city. There are two ways we can help you: (1) We could offer you $60,000 cash now. OR, if you’re willing to wait to get paid in full, we could offer you $10,000 now and $60,000 in about 6-12 months after the house is fixed up and sold. Notice with the second offer, we can pay you more if you’re willing to wait. Which would you prefer?

    Seller” If I can get at least $10,000 now, I can wait to for the rest and it would be great to get $70,000.

    Me. I will send you a contract to buy the house for $70,000 with $10,000 paid now and the rest paid within 12 months. Of course, it will be subject to our inspection this week.

    Seller: Sounds good. Thank you so much for taking care of everything for me. I’m so glad I called you.

    (NOTE no monthly payments)

    exit strategy

    My objective is always to have as little cash invested in the house as possible. (less risk) If I got this one for $10,000 down, I could sell to a rehabber for $95,000 – $100,000 with $15,000 down, interest of 9% and monthly payments, and a balloon at 6 months. Wraps the underlying note I have with the seller.

    This is a great idea, Jackie!

    Get the key holder to take pictures of the inside and outside, if possible.

    Find a handful of investors (LLC’s) in the neighborhood via the property tax assessor’s website, skip trace and call them to find out what they would pay for a 3b/2ba house that hasn’t been updated for 20 years in that neighborhood.

    Find out what tax bracket Jill is in to determine her potential tax liability from the sale might be.

      Proposal 1

    Base on the #’s that investors may pay–
    Entry: Offer an option to buy it for ~10k less than those figures. A property inspection, appraisal and 3D walkthrough of the house [to be used as an aide in selling or renting later]would be used as option consideration.
    Exit: Depending on outcome of inspection report , either…
    1. assign contract to investors that I contacted earlier,
    2. do a Highest bidder sale for highest downpayment w/ seller financing (use Jill’s potential tax liability to consider seller financing)
    3. or HBS for total purchase price. Offer to split w/ Jill the profits 50/50 as icing on the cake if need be.

      Proposal 2

    Perform a landlord survey or contact an agent to inquire what rents go for in the neighborhood for such house.
    Entry: Base on the rent figures, NNN master lease for ~70% of gross rents m-2-m, w/ option to buy for ~110% of appraised value, minus repairs from inspection report. For every on-time rent payment, 150% of that payment is to be credited against option strike price. 1st payment not due until a tenant moves in.

    Exit: Advertise house as rent to own. Find tenant that would want to stay long term and has ability to perform updates to the house. After repairs are made, and until tenant’s credit score can qualify for conventional financing, have tenant cash you out. Pay Jill any balance left [if any] on option strike price.

    There are always MANY different ways to put a deal together. There is no one right way,

    What would you do if you got this call?

    Hi Jackie,

    I would confirm the comps are in the $145,00 range for a house, assuming the home has not been updated.

    Assuming $35 k in updating and rehab would bring the value into the $190-$200k range I would do the following;
    a) Make contact and ask open ended questions to learn about her and the houses history and getting a feel for her situation.

    b) Once I feel a rapport I would make offers immediately in the vein of
    1) All Cash – in the 60% range and “negotiate (i.e. haggle – which is really not negotiating in my book) up to 70-75% of before repair value.
    2) Pay her x # of dollars per month (master lease situation with option to buy)

    If she does not want to keep title I would suggest that instead of a lease-option offer we do a seller finance deal with good terms, pointing out she will make more than she would putting the money in a bank. If she has certain time frames for needing some of the money as oppose to a good steady monthly cash flow I will structure it to fit her and my needs.

    Exit strategy will depend on the deal worked out above. What is going on in the town and neighborhood of the subject property.
    Is the area growing? / declining? / gentryfying?

    What type of financing is available for an end user, what are the rates, etc?
    I would then act according to the situation.

    A) All Cash Deal – I would size up the current and future opportunities of the market. Is there a better use for my cash now or in the near future? Can i get attractive financing (private lender or possible institutional- now that the institutional crowd is desperately looking to increase their yield and are now making 30 year investor loans). If so, buy and rent if attractive area. If area is not attractive and is in decline, offer less than 60% to Jill and flip quickly.

    B) lease option – Look for a good candidate for a long term lease. Would not make any offers to them at this time about possible purchase of the property. As time goes by and they turn out to be excellent tenants I may consider offerring them;
    a) to buy out my option
    b) close with Jill and and sell to the tenant, a possible wrap if Jill has come accustomed to that nice steady cash flow she has been receiving.

    C) Seller Finance – depends on rents in the area, if strong positive cash flow is available in a growing / improving area, would hold onto. If area is declining would sell for cash and work with Jill to “move the mortgage” to another property

    All great offers so far. Let’s hear some more!

    If you don’t live near the property, would be inclined to keep it for cash flow if the numbers were right, or would you prefer to get in and out as fast as possible?

    Remember, there is no one right answer

    Some people are brand new, others are estate builders, and some are enders. Each person has different needs/wants

    Creative RE games, what a GREAT idea! Helps us newbies.
    Gary Swartz

    How bout 100k at 500 a month secured by another property? Quick sale for 75k. Loose 25k. Keep nice loan on other property. Result is a 3.6% loan.

    Would you be willing to move to Oklahoma? Move-In. Fix it up. Then sell after 2 years so you can take advantage of IRC 121 so all profit is TAX-FREE? ( with IRC 121, a single person can make up to $250,000 tax-free when they sell their personal residence. A couple can make up to $500,000 tax-free when they sell their personal residence)

    Would you be willing to move into a fixer-upper every two years to create a cash nest egg?

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