Profit Margin On Sub-2
I'm looking at doing a sub-2 but need to know what a good profit spread is on the initial deal: ie, how much to pay compared to FMV. It seems like a lot of people are projecting the lions share of their profit off the spread between FMV and price of selling through owner financing (10-15% markup for selling on terms). John's manual says look for houses with little equity, 1-2 years old with little equity. This is a big departure from the traditional approach of paying no more than 70% of retail. Just want a good profit ratio to work with before commiting to taking a house sub-2 and then not being able to sell and/or profit. Thanks. DP
$CASH$ says to look for places with little profit because it is a lot easier to show these homeowners that they will be in the negative after re commissions, closing costs, and repairs... Then you will lease option (rent-to-own) the property to a tenant buyer... This will give you monthly cash flow as well as the future spread between retail value and your outstanding balance...
You increase the final sales price a little to account for appreciation... this is where your profit is with properties with little equity!
Good Luck!
[addsig]
EagleDennis,
If there is any equity we eat it up with the "Pad" it does not necessarily mean there is no equity, the majority of houses we run accross have equity, but not when we are done. We can blow away $15K in equity with a few strokes of the pen, I don't consider this little equity in the overall picture.
Well you tell me how many houses you can find with the traditional manner of 70%, while you are looking for them I will have done quite of few of non traditional deals and make money doing it.
Done correctly the average profit is $25K on a Subject To deal, don't wear your Conventional Hat when doing Sub-2's or you will fall into the wrong way of thinking. If you read our board you will see deals of $80K -$100K profit going down, so it can be done.
John $Cash$ Locke
[addsig]
You can always ask for more downpayment but I think that may eleminate some of your buyers. Also you may be able to ask for more money down if the property is located in certian area. It really all depends on what your particular market will bear. Another thought smaller down-bigger monthly and end payment. I personally wouldn't sell a note that they would owe to you because they may bail out and that might create probelms for everybody including your note buyer. If your selling CFD that is.