I do a lot of lease options. And I always try and get 5-year option terms. One of the more common objections that comes up when I propose a 5-year term is “you want to have the option to buy my house at $200,000 today, but what happens if the property is worth $250,000 five years from now?”
Now, when I hear this I go into the following script: Mr. Seller, we always lock in the price upfront that way there is no confusion down the line. Of course the price could rise, but it could just as easily fall as it has in the last few years. Since there are no price guarantees in the future we always set the price up front that way both you and me know what were getting a few years from now.”
What happens once I’m done…
Once I complete this script-if the seller is motivated-that objection quickly disappears and I never hear it again. However, I was just working with a new investor and let me tell you how he dealt with the above objection.
When the seller was worried about future appreciation, this investor said he would do an equity split of 50-50 above a certain dollar amount.
Now, this investor is relatively new, but I have never done an equity split and would never propose this. Of course, if you propose it, the seller is going to want to do it. And, you’ve just given up 50% of your profits.
This is obviously not the best way to make the most money as possible in your business. If you only give the seller certain “pathways” they can do down then you control the process and you control how much money you make.
Let me give you another example…
When I’m doing a subject-to, I never give a seller money upfront. But give them the money they are due when the property sells.
By never deviating from this plan I don’t have to worry about getting in a cash crunch, or giving the seller a ton of money upfront because I never give them that option and I create the type of subject-to that I want to do.
Of course, I have a detailed script about how we make our money when the house sells, therefore we put in a tenant who will purchase the property ASAP… so that’s why they get their money when the property sells because it’s when we get our money too. (The script’s a little more in depth than that, but you get the point.)
So as you go forward this week please remember that you’re in control and can create the type of offers and terms you want. But you must know your scripts well, that way you can properly explain to a seller, why you do the things you do.