Additional Clause In Subto Agreements?
Is it possible or advisable to add a clause in a subject-to sale to also make the sale subject to finding a tenant/buyer within a certain time frame? It seems to me that this would help to limit one's personal liability in the property. Or does this just make it too big of a risk for the seller?
From a sellers point of view here...You want me to sign a contract with you to purchase my house, your going to give me $500, $1k, whatever to move out, and this deal is only good "IF" you find a buyer.....Tell me, have you solved my problem? If you don't find a buyer, then I've let you tie up my property for however long and I get the house back with me being in the same position I was in when I signed a contract with you. Tell me, did you just graduate from somebody's boot camp and have no money?
Put yourself in the sellers shoes and propose what you have just said to yourself. You are in no way helping the seller by putting that clause in there. Who is making the payment while you find a buyer?
I suggest you not buy using the sub to method if you want to add that clause in there. You might buy a couple of houses with it, but not many.
Thanks, that's pretty much what I thought. I appreciate the feedback though!
I got a seller to agree to this once but dropped the whole thing after the seller got a cash offer for 125% of the value of the home. I basically said that I was here to offer a solution but you found one that is obviously better so I wish you luck, etc.
I'm going to disagree with nebulousd.
I do have that clause in my contract. Reason being that i'm protecting myself.
I explain to the owner that there is a chance I will not be able to fill the property and in that case I will have to give the property back. Of course you are there to help out the owner but not at the chance of your financial downfall. I think it only makes sense to cover yourself first. I suppose there are those out there who don't agree, but that's my take on it.
Let me finish this by saying that's just ONE of the out clauses at my disposal. Could I take it out and still get out of the contract with ease? Yes. Do I feel an obligation to the owner to be honest and up front. Yes. Am I willing to risk losing money and go into a deal putting money into it without knowing if it's going to work. NO. Beside, if your negotiation skills are good enough they'll sign that contract with that clause in it. I explain to them I'm there to help them AND make a profit. If I don't fill the property I don't get paid, and I don't like to work for free.
Ryan J. Schnabel
Motivated sellers will agree to giving you their first born if they believe there is a possibility of helping them out of their situation. That's why a lawyer can convince someone dealing with a bad foreclosure situation to make it worse by declaring bankruptcy. All it does (usually) is just prolongs the process because the moment they miss a payment (and they usually do) the bank swopes down and forecloses. All the bankruptcy did was completely screw up their credit for the next 10 years.
So the answer is yes a seller may agree what you are proposing because you may be the only one making any sense to them and the only one making them an offer.
It seems to me that with that clause in there, you are buying a property and don't know your exit strategy nor have you done you due diligence properly to know what the hell your going to do with the property. You're not investing, you're guessing. "I guess I can sell this property or do something with it, but if I can't, here you go, take it back." Covering yourself is knowing all your back doors before you walk through the front....not walking out of the side.
This is in the subject to forum so my next question would be, after you get the deed and record it, and then realize you can't sell it, what do you do? Deed the property back to the sellers and mail them the deed with a letter attached to it? What is the letter going to say? "I bought the property from you and recorded the deed in my trust, LLC, whatever, but here's your house back with your name now on the deed...I took the liberty of recording it for you...AT NO EXPENSE TO YOU. This one is on me."
Give me a break. That's a weasel clause if I ever saw one.
Now if you people are L/Oing houses this way, oh I have no complaints. Be my guest and have fun. But if you guys are taking houses subject to, PLEASE DO NOT do this because it makes those who know what they are doing look bad. And when I say do not do this, I mean give the house back. Find a hard money lender, another investor, or get a loan.
OK, NebulousD then I have a follow-up question to you. Which type of investment (L/O vs. subj-to) do you prefer and why? Related, but perhaps different- which would be better for a new investor with not much $$? Thanks!
I don't L/O houses. Here is a post by rajwarrior that gives a good example.
Quote:
On 2004-01-20 09:50, rajwarrior wrote:
Just one more point on the subject.
If you "buy" thru a L/O and "sell" thru an L/O, you have simply created another problem for you at the end of the term in the matter of titling seasoning. In order to sell to your tenant/buyer, you must first purchase from the original owner. Since most lenders now require 6-12 months of "seasoning" of title, you'd have to have your crystal ball handy to prevent any problems with your tenant/buyer's funding.
Sub-to investing, you're on title from the start, so there will be no seasoning problems in a year or two when your T/B refi's.
I might add that, IF you're the reason, the t/b can't get financed, ie not enough seasoning, you could be forking money back to them in the form of reclaimed option fees/rent overages/damages.
Roger
http://www.thecreativeinvestor.com/ViewTopic20031-34-34.html
Other reasons include:
Greater cash amounts up front.
I'm not renting the house either, I do not sell on a L/O therefore the buyers have pride of ownership when I sell on a CFD.
The buyers make improvements to the property at their expense so in the event I do get the house back, improvements have been made.
I have greater control because I retain the deed when I sell. (Retaining the deed also is important for my buyer because no other liens can attach to the house from the original seller.)
I create another asset which is the note I carry on the property which opens up other doors for me as an investor...I can sell the note at a discount. I can trade the note for other assets.
There are many more reasons, just read all the articles and post on buying sub to as opposed to L/O.
And for a new investor, either way makes no difference as to how little money they have. You can L/O and sub to houses with little amounts of money. I am in no position to speak on how much one makes or doesn't make in a L/O. I just know why I don't do them. I don't need to touch a boiling pot of hot water to know that it's hot.
[ Edited by nebulousd on Date 02/05/2004 ]
So what do you do if you can't sell a house you pay the payment till you can sell it and go bankrupt in the process.....
Just to summarize, yes you can put that clause in the agreement. Yes, an owner who is OTB (over the barrel) will sign it.
The only contingency in my agreement is that upon verification, what the owner told me is substantially correct regarding mtg balance and other encumbrances. I would never take a deed and then wonder (as I often see on this website) what do I do now??? Once due diligence is performed, and the deed is conveyed all problems are mine and no longer the previous owners'. That's why they give me title.
If you don't want to dance don't wink.
I would never plan on scewing some one and there credit but if I run out of money and can't pay the payments what would be a good out...Do I flip it to another investor or are there money lenders that would be willing to front you some money until you can cash thm back out.....
P.s I know I could also be hit by lightning on the way to the house as well..I don't want to run into a problem but if one does arise......ya know.....[ Edited by mjdreal on Date 02/05/2004 ]
A better alternative than doing a subjet to deal would be for you to take a non-exclusive option . That way you have a chance to find an end user, assignee, or financier. At the same time the owners who are hurting can continue to market their property or look for other alternatives. Neither party is damaged.
Maybe just my opinion, but if you had a good sub2 deal, I bet you can find an investor to take it off your hands. Don't expect to make any money, but investors with a strong buyers' list can move the property pretty quick. Basically, you turn a Sub2 into a wholesale.
If the deal is not good, your mistake and you pay the price. Sell at a loss and learn your lesson. Throwing it back to the seller is not ethical.
Also my opinion: if you add the weasel clause, you are just getting an option on the house, not sub2'ing it, except you've just taken the seller's title.
Peter[ Edited by moveitnow on Date 02/05/2004 ]
When you make comments like, "Am I willing to risk losing money and go into a deal putting money into it without knowing if it's going to work" and "So what do you do if you can't sell a house you pay the payment till you can sell it and go bankrupt in the process....." why are you buying the property? Your Due Diligence is going to tell you what your going to do with the property and if you can sell it or not. Knowing your market, having a buyers list, knowing all your exit strategies is part of the process.
Yes you can find a private lender. You can partner with other investors. Are apart of your local REI club? Plenty of people there would chime in if you asked for help.
Another approach would be to advertise that you have a house for sale and you really don't. Find all those serious buyers and ask them what they are looking for and then go find it. There, you solved your buying problem.
There are risk associated with any investment...minimizing that risk is the way you want to play the game. You can tell me all the things that will go wrong and I will tell you all the things that will go right. In doing your due diligence you are lowering your risk and making informed and knowledgeable investment decisions.
As Sammy said, don't get the deed and then wonder.