Subject To HELP!?
With this kind of deal the seller's loan needs to be assumable correct? If this is so... are these deals easy to come by?
Say you set a deal up with the seller, and you now want to sell via Land Contract. Should you have exstensive background checking done on the potential buyer? Perhaps their credit is not up to par, and they cannot buy in 2 years... what happens?
[addsig]
Perhaps I just don't have any idea of what I'm talking about?
It seems like I understand it, but the details are just a little cloudy.
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You may find it nearly impossible to find an assumable mortgage these days.
John Cash has a pretty good manual on Subject-To.
Not to doubt the "master", but I asked my newly found team member - RE Attorney about Subject-To. My biggest fear is that wonderfull Due on Sale Clause. The attorney said they won't activate the DOS unless you don't pay off course.
He did caution however, if you due a Subject-To, and you fail to pay, the bank will foreclose on your seller, who in turn will come after you.
As for if you new buyer doesn't pay. You foreclose on him, get the property back and resell it. Or maybe do a combo move:
You buy with Subject-To. You Lease & Option the property to Joe Couple. Keep the lease and the option seperate. Much easier to evict then to foreclose (or so I have been advised).
Just my 2 pyreal. Hopefully some of the pro's will offer additional support.
Good Luck,
Ho...
dbow17,
First Ho since you paid off the course you will not have any DOS's called on you.
Now, here is the skinny, make sure you pay 'on time' your sellers loan. If you do not this is a 'flagg' to the lender there is a propblem, so pay on time no problem.
Make sure you use a Loan Servicing Company (LSC) as a buffer, or third party to handle questions from lenders. The LSC also handles year end tax statements, shows a payment history to the lender when your buyer is required to re-finance.
For the new person when you purchase a property 'Subject To the exising loan staying in place', this means you use the sellers loan to finance your new buyers. No credit required on your part or you buyers part.
OK, the Lease Option part, you do not get the amount of money down you will selling on a Contract for Deed. I sell using Contract for Deed, the reason (besides more dollars down) is you may try to hide the Option part, but the moment your buyer says the magic words 'equitable interest' you are in the foreclosure process. So do not count on this for a quick eviction.
You need to learn how to get your buyers out with out foreclosing on them, this is a very simple process when you know what you are doing. Ho, all you have to do is ask on the subto board.
There is much to learn using the Subject To method of investing and I understand this, that is why I have 24/7 one on one email with me, a password protected web site to ask questions, get answers and share with one another. Then my students have my cell phone number for those times when they really need me know.
No one who has my Subject To manual, ever goes lacking for an answer, you may have many different opinions from Attorneys, Title Companies, etc., the majority of the time some of these people have no clue what a Subject To deal is, so in their mind it must be bad.
I can safely say it is done all across the United States everyday, if someone says it can't be done they are surely doing it and do not want the competition.
If you need more answers ask.
John $Cash$ Locke
John - perhaps I will program an auto thankyou for each time you post.
Thank you again for bringing your experience and wisdom to the board.
Please note, that I tried to respond to the original poster, without providing too much detail as I didn't feel it proper to take away from you.
I do have many questions on Subject-To, but I'll chat with you more about them later.
As for the Lease and Option, I will due some more research, but from my understanding of what I learned, if the contracts/agreements are worded the right way, you can protect yourself, to a degree, from deadbeats.
When I study more and more about REI, I learn a lot. And now I'm trying to decide which better fits my plan:
1. Concentrate on Middle America SFHs
2. Purchase, and hold (rent to tenants) for cash flow
OR
3. Do Subject-To buy and sells. Subject-To is looking more and more promising. Just need more questions answered.
Ho...
Great info, thank you!
I am still unsure about the Loan aspect. I would be using the seller's exsisting loan to finance the buyer? Does this mean, the buyer would be paying off the exsisting loan of the seller? What "financial" advantage can this be for the seller?
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Dustin,
Your buyer will pay off the sellers loan at a specified time that you give your buyer to do so.
The financial advantage is that your seller did not want to pay on the loan anymore and you offered to do so. Eventually your sellers loan gets paid off by your buyer and your seller has no more liability for the loan.
John $Cash$ Locke
wow
Making things a little more complicated than necessary. That makes perfect sense now, thank you.
[addsig]
Maybe a brief scenario might help:
A John Q. Seller has a house for sale at $135,000. He has about $10,000 in equity, and the house is free and clear of any liens. His mortgage is with ACME Mortgage company for a balance of $125,000 for 28 years at 7.5%.
You make the seller an offer on his equity for say $6000 cash, with a Subject-To existing loan staying in place. He agrees.
Once the deal is done, you go find a buyer. Perhaps a buyer who needs a year or two (no more than two) to get his credit back in order.
You sell to the new buyer for 10% down, ie. $13,500 (or more) and buyer takes over payments that you set (hint, mark up a little over and above actualy PITI payment). After a year, or close to two if needed, the buyer re-finances and you are done.
For more information, check out John $Cash$ Lockes book. He probably can explain it much better than I since he has been doing it a long time.
I believe my scenario is on mark, but if not, I'm sure one of the Pros will correct me.
One thing I have noticed a lot is that people want to get into REI, which is great, but try to jump in too fast. Take your time, read this board and other internet site. Buy or borrow RE Books. There is no Get Rich Quick plan here.
It may seem I rant a bit about jumping in, but please learn from my mistakes. I took on two businesses on my own and "jumped into" them. Both failed. I learned a lot, and luckily didn't loose but a few thousand dollars. I've learned. I will not make those same mistakes.
Assemble your team, educate yourself, and take action. Good luck to you, I wish everyone much success.
Ho...
Well put, Ho....
I don't feel like you rant. Personally, I enjoy your post and think you should do so more often.
Thanks
Thanks for the kind words furiousinc.
I think this "Bird Dogging" Phenom is catching on.
Let's go make some $Cash$ (pardon the pun)
Ho...
I've been studying various RE courses and I like the subject to. It makes sense if you find the right buyers. I'm confused about something here though. Wouldn't a "flag" go up in the banks mind, when they start receiving their mortgage payments in someone elses name? (after you (the buyer) buy the property in the form of a subject to)
jhtoolman,
Glad to meet you.
There is a clerk making about $5.50 an hour who processes payments for the lender, figure the odds that this clerk who handles thousands of payments monthly would figure out who made the check out or could care less.
This clerk looks for the Loan Number so proper credit is given, not who made the payments.
It makes sense to me, hope it does to you too.
John $Cash$ Locke
$Cash$ -
Is it safe to say that subject to is simply paying someone an agreed amount of money to take over their loan and then find someone for a land installment contract that you encourage them to pay off early (when their credit gets right). What if they never ending up getting the loan, do you say the heck with it and be happy you are recieving some cash flow for the next 20+ years and move on to the next?
How are you securing your interest for deed?
Does the bank ever figure it out what's going on? Like when your new buyer is getting his loan for payoff? Would your buyer ever try to get his loan through the exsisting bank carrying the existing note?
This all makes sense, but if I was to try to do one, I would quickly realize "I don't have a clue".
Bird dog was great, I read it last night. The subject to topic is interesting, but I need a little more understanding before I'm ready to throw down on the book.
I challenge you to peak my interest with your next post.
Thanks -
gtrzndrums
gtrzndrums
Is it safe to say that subject to is simply paying someone an agreed amount of money to take over their loan and then find someone for a land installment contract that you encourage them to pay off early (when their credit gets right).
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Close, but what you are really doing is giving someone a small amount of money for their equity. The method we use can eat up $15K in equity in a heart beat, leaving us in the position to pay the seller very little for what they 'thought' their equity was. You also get the Deed so you are the owner of the property.
You now sell this property on a Land Contract, Contract for Deed, or similiar State Specific Device. You have in your contract a provision stating when they must re-finance he property usually 2 years. You also increase the current loan rate on the property by 2-3 points which gives you a nice monthly passive income.
The Deed you hold stays in escrow in your name, until your buyer refinances.
You work with the buyer to help them re-fianance because you build in 2 years worth of of equity when you sell the property, so you may have $10K-$20K or more coming when they refinance.
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What if they never ending up getting the loan, do you say the heck with it and be happy you are recieving some cash flow for the next 20+ years and move on to the next?
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You will never have this situation because if your buyers or new buyers do not refinance there will come a point where the house has increased in value to where you just sell it conventionally.
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How are you securing your interest for deed?
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The Deed is in your name or Corporate Entity so you hold the Deed thereby securing your interest or title to the property.
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Does the bank ever figure it out what's going on? Like when your new buyer is getting his loan for payoff? Would your buyer ever try to get his loan through the exsisting bank carrying the existing note?
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The new mortage lender does not care who holds the Deed they are in the business to loan money, which includes paying off the exising mortgage and Deed passing to your buyer. The existing lender only wants their money so they would not care either.
Lenders are in the business to loan money and make money for their investors, if the paperwork is in order then the money flows.
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This all makes sense, but if I was to try to do one, I would quickly realize "I don't have a clue".
Bird dog was great, I read it last night. The subject to topic is interesting, but I need a little more understanding before I'm ready to throw down on the book.
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Thank You, the Big Bucks Bird-Dogging e-book was written to get you going, Subject To investing is icing on the cake when your are ready.
If you understand Subject To investing, then some of those deals you find you may not want to turn over to another investor. You may want to be the investor.
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I challenge you to peak my interest with your next post.
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Well I know your interest level is peaked, and your are trying to figure out how to reduce someone's equity to 'U-Haul' money. It is in my Subject To "that's what I do." manual.
John $Cash$ Locke
That is exactly what I was looking for... CLARITY!!! It must be clear now if I understand it. Everything to me is usually "clear as mud", but this is well explained and much appreciated.
One last question... what kind of bucks does it take to do subject to. Is it just the U haul money and is there any closing you would pay? I guess I am just trying to figure out what my bank account needs to look like to try a first deal.
Many thanks $Cash$ -
gtrzndrums
John,
I am unsure of what the advantage of the buyer refinancing in 2 years is worth to me (the seller)? Also, I see you mention a loan servicing company... could you describe their role in the equation for me please? Are they just the middle man for the buyer to send their payments to, then on to the mortgage holder?
[addsig]
Subject To 101,
The Loan Servicing Company (LSC) has many functions.
The (LSC) acts as a 3rd party for collecting from your buyer. This way if the seller asks how do I know my mortgage is being paid on time you explain that the LSC collects and pays the lender.
You also set up a Trust Account with the LSC, if your buyer does not make his payment on time then the money is taken from the Trust Account to make sure the payment is not late. Another warm and fuzzy for your seller.
The Trust Account is built up by taking some money from the down payment on the property, this account will build up quite rapidly from the down payment money. Good business sense.
At the end of the year the LSC sends statements to your buyers for income tax purposes one less thing to be concerned with.
The LSC charges anywhere from $75.00 to $150.00 for account set up and $5.00 per check per month sent to the lender. I close my deals at the LSC so your closing costs are minimul.
The reason I want them to re-finance and help them re-fi is at the end of the contract usually two years I pick up the money (2 years appreciation) on the back side of the deal. In other words I add 10%-15% to the loan payoff when I purchase the property.
Example:
Purchased sellers equity $500.00
Sold property for $8,000.00 down
Added $200.00 per month to the existing loan payment, by increasing the interest rate. My perogitive to do this, since I control the property.
Added $15,000 to the backside of the deal (2 years appreaciation on the house) which I get when buyer re-finances.
On a typical deal like this total gross profit will be about: $27,300.00
How many deals a year will it take to make some serious money?
It takes a few bucks to do the deal, nothing that should drive anyone over the edge. Have a Bird Dog find you one, then minimal advertising costs, make sure you take good care of the Bird Dog if you want him or her to come back with your next deal.
John $Cash$ Locke