Adding Strategic Clauses to Contracts

In February of this year, I purchased 10 brand new properties using capital from 9 investors, including myself.

At that time, all signs pointed towards a signiicant increase in interest rates. We knew that this would dramatically kill the buyer pool and decrease prices due to less demand.

With commercial mortgage financing (in this case more than 5 residential units), the higher the cost of the property (including debt servicing) the lower the loan amount that will be considered.

In order to avoid the lender decreasing our loan amount prior to funding for this reason, I added a clause to the agreement of purchase and sale as follows:

"The Seller agrees and acknowledges that in the event the mortgage interest rate offered to to the Buyer by the Buyer's lender exceeds 4.50% on a fixed basis term, that the purchase price shall be reduced in the amount of $10,000 for every tenth of a percent increase in rate. The Buyer further acknowledges and accepts that the price shall not decrease by more than $150,000."

As most lenders set their rates 30 days prior to funding, we were offered 5.36% on a 5 year term and thus the seller decreased the price by $86,000.

This is just an example of countless clauses you can structure in a deal when you understand the market. Had this been a seller's market, the builder would have told me to go fuck myself.