Creative Real Estate: 3 Ways to Create Real Income with Term Deals Without Using Your Cash or…
Based on an interview with real estate coach, mentor and best-selling author Chris Prefontaine.
In the 2008 real estate market crash, Chris Prefontaine was forced to re-engineer his real estate business.
Chris first got a taste of real estate growing up in his family’s business, where unique property agreements became a side income. In 1991 he started building homes and flipping land himself, and his success has grown into a business he now shares with his son, daughter, and son-in-law, Smart Real Estate Coach. And even though his family business got a beating in the 2008 crash, they came out of it better by reinventing the way they made deals. Chris and his family now coach and mentor people from all over the country to achieve the same success.
In 2013, Chris and his company started doing real estate on their own terms — literally. They started doing real estate deals on terms.
Chris works with (a) sellers who were unsuccessful in selling their homes, for whatever reason, and (b) sellers who have time and want the most out of their home. He offers them an alternative solution to sell their home under a specific set of rules. Without the need for brokerage fees, these sellers are motivated to get as much money as they can out of their home by working with Chris and his family.
Think of leasing a car — terms deals are very similar. They also don’t require cash, capital, credit, bank loans or risking personal finances… And the way Chris does them, there is very little risk.
In a terms deal, Chris’s company acts as a middleman between a seller and a pre-qualified rent-to-own buyer by using the following process:
- First, he creates a terms contract with the seller, stating the conditions and time period for the cash out — a lease purchase contract.
- Then, he finds a buyer that is pre-screened mortgage-ready in 12–36 months, and creates a rent-to-buy contract with them over a term period in less time than the term created with the original seller.
How does Chris make money? The transaction creates three distinct pay-days:
- Payday #1: A non-refundable upfront down-payment.
- Payday #2: The ongoing spread (difference) between the monthly rental/lease fees from the buyer and the principal payments to the seller or seller’s mortgage company.
- Payday #3: The final cash-out from the property sale, which includes the property markup as well as the principal paydown over the term.
Structuring these paydays on terms creates wealth and continuous cash flow. And unlike other real estate niches that require constant attention to generate cash flow — like wholesaling and flipping — these three payday’s cash flow the terms with the seller, Chris’s business expenses, and make him a healthy net profit!
The terms set with a buyer are typically the same, but based on the seller’s situation there are three different strategies to structure a terms deal when buying:
Sandwich Lease Purchase
Owner Financing Purchase
Subject to Existing Financing Purchase
If the seller is not pressed to cash out on their property but has underlying debt (a mortgage) and wants the most money out of their home, a Sandwich lease is one route Chris will take.
In a Sandwich lease, Chris’s team places a property under contract with a lease purchase agreement over a term with no initial down-payment. They then sell the property to a rent-to-own buyer and a portion of the monthly rental fees are used to pay the lease payment to the seller or their mortgage company and they retain the spread. They also benefit from the principal paydown on the property (the loan has principle monthly in the payment) when they cash out.
Just as if he owns it, he is getting the benefit of a mortgage paydown without ever applying for or taking out a loan.
This type of terms deal works in numerous ways and has for decades. But Chris’s team refers to owner financing when the seller is debt-free and they don’t need to cash out their property immediately.
This is very similar to a Sandwich Lease purchase except it’s structured as a 0% interest mortgage for the term — typically 4 or so years — that doesn’t involve the bank, credit signing or personal liability. Because the monthly payments are all principle, there’s enormous benefit in any market condition.
Subject to Existing Financing
When a seller needs debt relief ASAP, is behind in payments, or even over-leveraged, a terms deal is made subject to existing financing.
In this situation, Chris will take over the existing property mortgage in exchange for the deed to the property — but the mortgage stays in the seller’s name. Chris will make the monthly mortgage payments, just as if he took out the mortgage himself, but he never had to apply for the loan.
In this type of deal, there is no set term or end-date with the seller. Chris will find a buyer who will, again, make monthly principal payments to cover the mortgage, and will cash out the loan when the buyer receives their finance. In theory, they also could rent it out forever… but that’s not their model.
Chris has made a business out of teaching people the secrets behind terms deals. It is quite a unique approach, given the saturated markets of wholesaling and fix & flip. The Smart Real Estate Coach coaching program helps people all across the US and Canada to learn how to make these deals on their own or become an associate with Chris and his family team to get hands on help.
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