Why Are People Afraid Of Sub 2
Ordered $cash$ course and can't wait. Went to REI club meeting tonight and some fellow investors(and newbies) were there. I started a sub 2 conversation with a couple of them and everybody looked at me like a deer caught in the headlights. I've got the basics and can't wait to start. Most of the people just want to do conventional finance and just couldn't hold back the smile. Less competition for me. Doesn't bother me either. Just was wondering if they never heard of it, just scared, or didn't understand it?
I sure can;t speak for the rest of the wolves out there preying on down and out homeowners, but I was raised to follow every rule, even if it doesn;t make sense to me.
But I quit going to church, run my deals past my 82 year old neighbor to make sure he thinks they sould like I will feel OK about how I treat people I am doing business with, and CAN'T wait to do sub 2's! Now I am finially making some real money and my only problem is that my wife thinks i should work harder.
Sub2's are WAYYYYY cheaper than regular financing and if the loan gets called, you end up getting it financed anyway. go get em while you can!
Every time I see a post regarding the Sub2 I get more tempted to buy Locke's course.
clegg
I have usually bought the house cheap lived in it, rehab, and sell in 3 years. I have made alot of money on 3 houses doing that but honestly I'm tired of doing plumbing, electrical, roofing etc on these houses. My wifes in the lending industry and I see investors getting turned down everyday because of credit or can't document income. I think sub 2 is the way to go. If the loan gets called and I bought it right going conventional would be easy. But if you do it right the odds of that happening are slim.
What scares most RE investors (and lawyers, and armchair millionaire skeptics, and everyone else) about Sub2 is that it's unfamiliar, out of their comfort zone, and just a little too creative (read: scary). This is your opportunity. You don't have to convince them of anything, just smile and make deals. You do have to do the right thing, help the person you're promising to help, and make sure the numbers work for you so this result can happen. If the numbers don't work, make sure you can offer some other options to the seller, if, for example, they really want to save their house.
I remember trying to explain Sub2s to a lawyer, who replied, "Did you buy a course or something?" Hmmm. "Yes, I did," I replied. "Were you born with your law degree?" Never did business with him. Lawyers' role is not to ridicule clients or even to understand Sub2s, but only to process their legal paperwork.
The main problem using Sub2s, and John C$ takes pains to clarify this, is that they make most sellers nervous. In my experience, most callers on my 'I buy houses' ad--even some of the desperate ones--are not good Sub2 candidates. Sub2s really only work for people who really want/need to sell, and are open to pretty much anything to get beyond their challenge. The investor--you--have a lot of 'power' in this transaction and you are trusted by the seller to make good on your promises and to know what's right for them, and for you. This is the knowledge and expertise for which you are handsomely rewarded.
The seller may not even read what they sign along the way. Sub2s have the potential for abuse, and many sellers sense this intuitively, just like you do. It takes a responsible investor, a motivated seller, and trust (or abandon) to make Sub2s work properly. Screwing people over, esp. under the guise of helping them, is way bad karma and will come back to you in ways most unpleasant, up to and including lawsuits and investor-hostile legislation.
Early on, I presented Sub2 deals to only somewhat motivated sellers and got lots of rejection. Part of it was that I was going into too much detail, and inadvertantly trying to sell sellers on the concept and explain the finer points, which is not a good idea. Sellers really don't even need to know--or care--exactly what's going on, only that you are helping them resolve their problems and get their property sold. Trust is essential.
That's probably the main problem with Sub2's 'image,' the belief that since it makes so much sense to the investor, it's bound to make sense to the seller. Of course, fresh from our training and reading, we want to rush to share, to explain everything and we end up confusing sellers who just want to get out from under their house, not enter a complicated deal.
Truth is, the seller is left vulnerable by a Sub2 transaction until the investor's--your--buyer refinances. It takes responsible investors to make sure no bad surprises result. And if a Sub2 deal goes bad for some reason (like the dreaded, almost mythological DOS clause getting invoked). you, the investor, need to have a plan B that doesn't harm your seller in any way. They trusted you, and you have to deliver, even if it causes you to lose $$ on a transaction. Hopefully it won't become a habit, though!
That said, have fun! It's really an honor to be able to help people and make money in the process. And as a bit of an anarchist (really!) I get a special kick out of subverting the 'rules' that the greedy, impersonal, and increasingly market-powerful banks use to screw people out of their houses and money when they're down on their luck.
I just graduated from law school and most attorney's can simply just not think out of the box. The only problem with doing sub 2 is the Due on sales clause, however why would a mortgage comapny foreclose on a porperty they are getting paid on. Simply, very slim that it will happen. I am currently getting forms so I can begin subject to investing. Looks like if it is done right, I can really supplement my income.
jdog,
Glad to meet you.
Here is a post from one of my students:
"I just did a deal where the seller had over 300k in equity... Yes $300,000.
He wanted to sell his house, he didn’t want to deal with it.
So I took over his 41k loan on 460k house. I offered him 295k for his equity payable in 30k lump sums every 5 months and gave him 5k up front. (It’s not hard to come up with 5k when you need it)
I then outright sold the house for 440k. It sold in 5 weeks and closed in 3 more. Had the house for a total of 2 months.
I'm in the process of figuring out what to do with my money."
I call this creative investing, but it was a Subject To deal.
So you are headed in the right direction, when you are comfortable with the process, if you read another post where these posters can't find an attorney who understands Subject To, then I would say you can keep busy between investing and helping creative investors.
Really am glad you posted.
John $Cash$ Locke
[addsig]