Posted by kac on August 16, 2002 at 12:03:37:
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Buying rental property sub2 - Posted by Kac
Posted by Kac on August 15, 2002 at 22:45:34:
Hello everyone. I am mainly concerned with buying real estate to hold for long term. So far. I have’nt had that many problems playing the landlord role. That’s probally due in part to the fact that I only own 2 duplexes. But, I would like to own at least 5 duplexes within the next 2-3 years. The only problem is I’ll run out of down payments before deals. I have a basic understanding of sub2 and from what I can tell is that sub2’s are gear more towards short term holdings. Is this true and what would be the best approach to buying 2-plex, 3-plex, or even 4-plex without bank financing?
Re: Buying rental property sub2 - Posted by Kent C
Posted by Kent C on August 15, 2002 at 23:27:35:
I bought a duplex and had the seller carry a 20% 2nd for me. I found a bank that had no problem with this. I then only had to pay closing fees. By the way I talked the seller into splitting these with me. So I only paid about $600 total to control these newly remodeled units, that appraised almost 20% over his asking price. 3 years later I refied at a cheaper interest rate at 80% and paid off the 20% 2nd.
My first duplex, I didnt even pay my half of the closing fees. I signed a contract with the seller to perform maintenance for him on the property he was selling. The amount was veeeeery close to the amount I needed for closing (grin). And yes, I DID perform the maintenance.
Kent C
Re: Buying rental property sub2 - Posted by Kac
Posted by Kac on August 16, 2002 at 01:35:15:
Kent, I appreciate the quick response. You said that, “I bought a duplex and had the seller carry a 20% 2nd for me.” Did the seller deed the property over to you and you then took out a 2nd pulling out the equity to pay seller? I’m asumming @ 80% while the seller carried back the 2nd? I know of a landlord who might be interested in selling some of his property.
Better than Sub2 - Posted by Kent C
Posted by Kent C on August 16, 2002 at 03:04:24:
The property was deeded to me. I paid the owner 80% from a 1st mortgage held by a bank. The owner holds a second mortgage against the property. So there were 2 leins put agaisnt the property and I held the deed.
After I later refied the property, I got a new first mortgage from the bank and cashed out enough to pay off the 2nd mortgage held by the owner. So here, the bank released its original mortgage, the owner released his 2nd mortgage and the bank issued a new ist mortgage.
But you dont have to deal much with all that. I just close with the bank. They perform their loan, pay the seller and the perform a 2nd mort for the seller for me. They want to see that their loan gets first position so perform the 2nd between the seller and me at no additional cost.
I just sign docs and ask if I can have one of the cherry lollipops in the glass jar.
I agree with you. Sub2 has its place but is a temporary deal. 3-5 yrs perhaps. I like to finance. And the more you can finance the better your purch price gets.
I recommend bidding your seller down to a good price first. THEN talk 2nd mortgage. One thing at a time. At worst you can give him his full asking price and have him carry a second if you have no money. But I recommend trying to talk him down to at the most 80% of FMV. Such as: Bid him 60 cents on the dollar. When he complains, agree it is worth more but you buy discounted property. Settle on 80% FMV “only if” he carries a 20% second. If it needs work, this must come off also.
If you plan to refi it after rehabbing it, you can get more agressive on the bidding. Offer much less because of the needed repairs AND because he will be cashed out once you refi in a few months. He holds a second only for a short while.
Then once you can afford the 20% down yourself offer even less to a seller because you are paying him ALL of the agreed money at close. Then after rehab or one year (seasoning) refi and get your money back out.
Last phase: You have enough cash to buy the property outright with your cash. (Until you refi it later). You can now close in a day. This makes you valuable. And you can buy property 10-30 cents on the dollar.
Kent C