Getting 2 Deeds for Sub 2 Deal... - Posted by Kevin (TulsaOK)

Posted by michael on March 24, 2004 at 17:57:07:

And you deduce from that that it’s okay to violate the most important qualification for getting a good deal?

Getting 2 Deeds for Sub 2 Deal… - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on March 24, 2004 at 10:21:08:

…one deed will be transferring the property into a land trust and the other will be a deed into my name. This is my first Sub2 deal. I have two Sub2 courses and I filled out the deed as instructed. However, I have read recently that counties are cracking down on Sub2 deals that transfer into trusts, so I want to make sure that I get the house with the extra deed. I have all of my paperwork for the trust: Deed, POA, CYA, letters to lender and insurance, and the assignment. I hope the trust works, but if not I’ll just transfer to myself and get an additional insurance policy to cover myself, leaving the existing insurance in place. Thus, not triggering the due on sale. Sound good so far???

Here is the numbers: $64.9K loan balance @ 8.5% (ouch); PITI $645 per mo.; Amount to bring loan current $3225 and sellers want $1500 for a total of $4725 OOP (+ minor fix up of around $200 + marketing costs); Market Value is $75,828.
My plan is to sell on a 2 yr. L.O. for $2K down, $750 per mo. and a sales price of $79,619. My ROI per year is 48% with a possible $15K on the tail end.

Worst case scenerio is they call they loan due. In that case I have the resources to refi. the loan at a better interest rate. Better monthly cash flow, more out of pocket, less ROI % and less tail end profit.

Well that’s it. What do you think? Any suggestions? Thanks for you help.

I like’m plump, she’s really skinny! - Posted by Mike

Posted by Mike on March 24, 2004 at 11:10:49:

Your numbers stink, pay 70 for something worth 76, RUN!

Re: Getting 2 Deeds for Sub 2 Deal… - Posted by Joe Kaiser

Posted by Joe Kaiser on March 24, 2004 at 11:01:51:

Kevin,

You cannot be serious. THERE IS NO EQUITY HERE. You could buy any
house on the block if you’re willing to pay full price, and then some.

You’re actually paying them more than they’d receive if they listed the
thing.

If you believe this is a way to make money in real estate, you’ve been
seriously misinformed . . .

Move on and get yourself a gameplan that has a chance to succeed.
This ain’t one of them.

Joe

What a contradiction… - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on March 24, 2004 at 15:44:59:

…the guru’s make. Joe, in your L/O course that I bought from you a few years ago, you say “give the seller his/her asking price”. Now you are telling me that getting a house for $8K under market, with less OOP than getting a loan, and a mortgage in someone elses name is a bad deal. Well, if I wait for a house to come along that has $20K in after fix up equity, I might as well give up.

I would love to do more sandwich L/O’s, but I am scared to because title seasoning has become an issue. I hope you have updated your course to address this issue. Just bought Brochick’s “Updated” Alt. Financing course and it mentions nothing about title seasoning. I’m getting the title dang it!

Kevin

Re: What a contradiction… - Posted by Joe Kaiser

Posted by Joe Kaiser on March 24, 2004 at 19:29:07:

Kevin,

Your very existence, like mine, is a contradition . . . but that’s for
another time and place (thankfully).

What you’re not “getting” is the fact that there are no guarantees here,
and you’re thinking this money is booked once you sign up the deal.

It works nothing like that.

Every now and then one of those deals goes along as planned and
there’s this fantastic payday at the end of the ride. I suspect it’s those
testimonials that make website sales letters.

The ones that don’t are the ones that don’t.

Your deal . . .

What happens when it takes 4 months to find your tenant buyer?

What happens when 3 months later they stop paying?

What happens when you try to evict them and they counterclaim for
their deposit back, saying you mislead them?

What happens when the seller decides he sold it to you to cheap and
tells his lender not to let you contact them anymore, gets an attorney
and asks for HIS house back?

Now, I’m not trying to scare you and all these things won’t happen on
any one deal . . . but every one of them has happened to me.

I could handle most of them, but there was I time I would not have
been able to. Some of those deals where it looked like there was some
money to be made ended up costing me more than $10k once the dust
settled.

So, I’m much choosier now.

Your deal . . .

I’d consider paying retail if there was a super low interest rate that
made the cashflow fantastic, (your’s is the exact opposite), or if it was
in my target area where I want to own, or if I already had someone
qualifited who wanted the place and I knew there’d be no problem
getting it filled.

But that doesn’t sound like your deal at all.

Do you know I know investors who have half a dozen vacant house all
the time and spend $5k a month to keep the thing going? Are you
prepared to do that? Their deals, by the way, were much better than
the one you’ve posted here.

It’s not the deals you miss that will kill you . . . it’s the ones you make
that you shouldn’t have that will absolutely bring you to your knees.

I think this may be one of them so do look it over every which way, and
loose.

Finally, this notion that houses with equity “come along.” Dude, that
ain’t it at all. We bust our humps tracking those suckers down.

Re: What a contradiction… - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 24, 2004 at 17:46:11:

I certainly can’t speak for Joe - I’m sure he’ll do that himself – but this is an issue which crops up fairly regularly here, and I think it’s a valid point.

The thing is, one has to keep in mind that things are never static in RE, or most anything else. Change is continuous, and ideas and techniques which are valid today may be nearly worthless in a few years.

As we gain experience, and get a better handle on what can go wrong, we tend to look more critically at risk vs. reward when entering into a deal. I did a number of sandwich LOs and low equity subject to deals when I first started out. Now, I’d likely do nothing if my choice was between that and a high risk deal with a good potential for a bad outcome – which is where I would catagorize sandwich LOs and low equity subject tos.

I know that Joe Kaiser hasn’t done LOs in years, and now concentrates only on high equity foreclosures. However, the problem is that for someone just starting out, especially if cash and credit are issues, you’re just not going to have the resources to handle those types of deals right out of the gate. I think sometimes the gurus find it difficult to remember what it was like when they weren’t pulling down five figure profit checks every week or two.

As for whether they should continue to sell courses which recommend techniques they no longer practice, I don’t have the answer. I sold a real estate course on eBay the other day. It was published in 1974. Not only did someone buy it, there were several bidders. Obviously it was worth something to somebody.

If you have followed any of Kaiser’s writings in the last few years, you know his thinking about what constitutes a good deal these days. I suppose that from a guru’s perspective, if people are willing to give you money for your course, even though it’s old, it’s tough to turn it down. It would be helpful if the gurus offered an update through the web where they could modify or expand on the information presented in their courses, especially when the information is perhaps no longer relevant in today’s market.

As investors, I believe it’s up to each of us to weigh the pros and cons of any particular technique, along with our own resources, experience, tolerance for risk, local market conditions and so forth, and make our own determination how to proceed. The reality is that things like title seasoning, while not insurmountable, are major issues, and they were unheard of just a few years ago.

So if you’re comfortable with your deal, you know and understand the risks, and you have the reserves and resources to take care of any problems which might come up, then go ahead. For what it’s worth, however, I’d have to agree with the others that I probably wouldn’t touch it with a 20 foot pole!

Brian (NY)

Re: What a contradiction… - Posted by Phil (CO)

Posted by Phil (CO) on March 24, 2004 at 17:24:45:

Kevin,

I think you’re a little off base.

First, when the gurus talk about giving the sellers their full asking
price, they are talking about what the seller would net in a “traditional”
sale. So, considering sales commissions, closing costs, holding costs,
etc., that number can be 10% to 15% less than the sales price.

So in this example, for a $76,000 property, full price to the seller
would be at most $68,400. This guy is planning to pay
$69,825 plus holding and marketing costs. So Joe is correct, he IS
paying MORE than market value to this seller.

On top of that, these people are behind on payments, maybe even in
foreclosure. Paying even close to market value under those
circumstances seems crazy.

Just my 2 cents.

Phil

Re: What a contradiction… - Posted by michael

Posted by michael on March 24, 2004 at 17:17:52:

You might want to reread that course…

page 22.

“Most importantly, I must be able to lease the property for not more than seventy five percent of its market value”.

I agree . . . - Posted by BOB H

Posted by BOB H on March 24, 2004 at 16:53:29:

That Joe Kaiser guy doesn’t know a thing about making money in
real estate. You just keep on doing what you’re doing and you’ll
be just fine - In fact, if you would like to come on over to Denver
(it’s only one state away!) I’ve got a bunch of nice properties I’d
sell you on terms almost as good as your deal there in Tulsa.

I look forward to meeting you - be sure and bring your
checkbook!

BH

Re: What a contradiction… - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on March 24, 2004 at 20:24:43:

Thanks Joe for not taking any of this personally. I am getting a little bit frustrated. I became a Mortgage Field Inspector to find motivated sellers. I have found many motivated sellers with little equity and a few with some equity. The ones with equity are not willing to do anything creative. There are many “small” deals to be had, so I bought a course to cover this niche.

Taking out new loans is killing my cash reserves. I need several deals that cost me no more than $2K OOP. Any suggestions on how I can accomplish this? Here’s some history: I have been a bird dog (made a lttle money but want to make more); my home was a preforclosure (20K below market); bought one rental with a new loan (12K below market, $125 mo. C.F.); and one sandwich L/O (4K below market, no OOP, $150 mo. C.F.). Thanks for the help!

Kevin

Re: What a contradiction… - Posted by Larry TX

Posted by Larry TX on March 25, 2004 at 11:16:21:

I have read about "risky low equity subject-2 deals " several time recently. I don’t understand. Why would someone buy any house with low equity using any kind of financing, much less subject-2. It would seem to me that transaction costs, an unknown holding cost, and unexpected repairs could easily tun the deal into a no/negative equity deal. I know that sometimes the terms can make a deal good, but I don’t understand the potential in a low equity deal. Can someone explain this to me. Why this is a viable stratigy. Thanks

Re: What a contradiction… - Posted by michael

Posted by michael on March 24, 2004 at 18:14:38:

For the record, Joe’s course recommends getting in at a minimum of 75% of current market value.

Your main point about shifting strategies due to market conditions is a good one. I have frequently pointed this about to posters who want to follow the get the deed folks. No equity deals might have worked well for a few years when we were in the real estate market of a lifetime. Historic lows in interest rates, booming demand, and double digit inflation, and you just hit the real estate trifecta. Nothing lasts forever.

What separates the pros from the amateurs is that the pros are educated about market cycles and have more than one strategy to profit from.

Re: What a contradiction… - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on March 24, 2004 at 17:44:22:

Read the next paragraph. $100 per month cash flow minimum. Mine is $105…

Kevin

Rofl-n/t - Posted by ROFL

Posted by ROFL on March 25, 2004 at 12:50:14:

n/t

Re: What a contradiction… - Posted by Joe Kaiser

Posted by Joe Kaiser on March 24, 2004 at 20:44:29:

Good post . . .

First question:

What makes you expect anyone to do “anything creative?” It’s only
creative from where you’re standing.

To someone else looking in, like that seller, it’ shouldn’t be creative at
all.

Also, the best luck I had as a Field Rep was the vacant houses I had to
go inspect. You should be jumping on those things.

Joe

Cash flow and appreciation - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 25, 2004 at 12:43:34:

I got to rambling on in my previous response, and didn’t really answer your question as to why someone would buy a property with low equity.

Cash flow and appreciation.

Neither of which is good enough to stand on its own, without equity, at least in the majority of cases.

Brian (NY)

You are correct - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 25, 2004 at 12:19:23:

I don’t believe it is a viable strategy, for exactly the reasons you list.

However, some of the self-annoited get the deed “experts” continue to promote subject-tos as appropriate for new investors with neither cash nor credit, even when there’s little or no equity.

With some of the more ethically-challenged, their position is that if you can’t find a buyer, or things go bad, you simply walk away, since you haven’t signed for the loan yourself.

Another school of thought is that prices are going to continue to increase due to appreciation, and you can always find someone out there who is willing to lease option or buy on terms until you cash out (at an above-market price) at the end.

Both of these theories are flawed, and I think the reasons are obvious.

However, to a newbie these deals can look very enticing, when someone is willing to just give them their property. The newbie either doesn’t know all the risks which can occur, or they dismiss them, after reading a few success stories where investors have profited handsomely by doing similar deals which (fortunately) went off without a hitch.

My opinion is that if you have no cash or credit, you shouldn’t be doing subject-to deals. The only exception would be if you had a buyer going in, and arranged it so you assigned your position to YOUR end buyer, took the option money as your profit, and got out of the deal. This could only be done, of course, with the full knowledge and consent of the seller.

Brian (NY)