Anatomy of A Subject-To Deal
Recently I made contact with a guy who is in the process of going south financially. Nice guy, I think this is a temporary setback for him not Armageddon. He owns a four-plex by the Red Socks Stadium. Here’s the skinny on deal. He agreed to deed to a land trust. The Payoff was 134,000.00 plus code enforcement liens. I comped the property at 256,000.00. I had to get Theresa Leckinger my appraiser involved as realquest gave me comps from 60,000 to 300,000. I thought that in this instance her guess would be better than mine
I did a walk thru on property. It needed 20,000 to 30,000.00 worth of rehab. The property was condemned by the city of ft Myers for paint and window glazing. Window glazing seems to be the latest kick by code enforcement if anyone knows why please share this with me.
So here we are
• 256,000 minus the costs of sale( 8 percent, that’s either realtor commission or paying buyers closing costs plus the sellers inherent closing costs)
• 232960 left over after costs of sale; notice I did not use market value.
• 30,000.00 rehab times 1.2 equals 36,000.00 rehab
• 196960 is now left over
• Balance of 134,000.00 ( since property is in foreclosure add 5,000 to it as the foreclosing attorney needs a custom set of ping irons for his golf bag) 139,000.00
• 57960 is projected profit minus holding costs and also factor in that at least 1,000.00 will magically disappear at the table, it always does trust me on this
Sounds like a homerun Huh?
It was until the title search came back, a recent 400,000.00 dollar lien kills the deal. Now, I was excited but I knew to wait until the title came back clean before I mailed reinstatement to Foreclosing Attorney (who was shopping for his new golf clubs I’m sure). Moral of this story is to have your ducks in a row. Here is what you need to do a subject-to deal.
1. A deal
2. A method to value the property.
3. Obtain a recent Payoff, every time the Foreclosing attorney or one of his minions picks up the phone, this goes up. Also what is the monthly PITI payment and how much to reinstate the mortgage? Maybe you can hold and cash flow. The above deal would have thrown a 1,000.00 a month (utopia) cash flow.
4. Perform a quality walk thru to determine rehab needs.
5. Order title on the property
6. Pay attention to property taxes are they behind?
7. Last and foremost a trip to county or city to see if there are any open permits or violations. As Jim Werner puts it ask the little questions like is this house scheduled for Demolition? It’s not a joke that has happened recently.
I am very conservative on my numbers. I learned that thru hard lessons (my checkbook).
Good luck and good hunting!.
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