How to do this SUBJECT 2 Deal ? - Posted by brad

Posted by Clint on December 22, 2004 at 05:37:07:

DO NOT be a motivated buyer… Find a motivated seller.

How to do this SUBJECT 2 Deal ? - Posted by brad

Posted by brad on December 21, 2004 at 16:09:10:

Got a 1 year old townhouse worth 150k whose owner wants to move to another house ASAP & wants me to take over payments & walk away. House is 2 story, 2 br/2 ba, move-in condition, no repairs needed, nice part of town!

Here is the break down:

ARV: 150K
Balance on 1st = 114k (3.75% ARM, 30 yr) = $725/mo
Balance on 2nd (Home Equity Line of Credit) = 22k (7.5% ARM) = $127/mo

Homeowners Assoc = $80/mo.

Total Payment: $930 per month

My plan is to lease option this house for $1000/mo + 3k down.

Is there anything I should do different since there is an ADJUSTABLE rate mortgage?

Also, the 2nd is an Equity Line of Credit - the payments on this loan change every month. Also, how do I ensure the seller doesn’t continue using the HELOC to pull more money out?

What do you think of the deal ??

What’s worse than having no deals? - Posted by B.L.Renfrow

Posted by B.L.Renfrow on December 22, 2004 at 08:53:54:

Having a bad deal…which this clearly has great potential to become, as others have pointed out. I speak from experience, having done deals in the past just because, as you put it, they were the only thing I had going at the time. I came to regret it. A bad deal is FAR worse than no deal, especially if you are inexperienced.

Bad deals can cost you dearly, in money, time, stress and reputation. I would suggest you keep looking. I wouldn’t touch this one unless the seller paid a minimum of six payments, in advance, to me, closed the HELOC, AND I already had a buyer lined up willing and able to pay at least $1200 per month.

Alternatively, if the seller was to pay off the HELOC I’d do it, but I’m guessing they don’t have the desire or ability to do that. If they want to get rid of the property badly enough, I’d suggest they consider getting a personal loan, selling something, cashing in stock, borrowing from their retirement funds, whatever it would take to get the $22k to pay off the HELOC, then I’d take it subject to the existing first.

Brian (NY)

newbie follow-up questions - Posted by Skip

Posted by Skip on December 22, 2004 at 06:38:30:

Sorry for piggy-backing on someone else’s post, but I’m trying to learn now how to do these kinds of no-equity deals myself.

Wouldn’t it be better for Brad to do a L/O instead of a sub-2? Or is it more difficult to get sellers to accept L/Os? If he does a sub-2 then he gets the title, correct? If so, he’s taking on a lot of risk. It seems that if the seller was willing to do a L/O, then Brad would know what his monthly payments would be. He could then assign his contract to a T/B and collect an assignment fee. It doesn’t seem like he should stay in the middle since there’s practically no cashflow.

Also, how do you know the seller isn’t motivated? Maybe the seller prefers to walk away from the house without it costing him money, but would accept something else. Couldn’t Brad make some other offer before passing? Bob in Indy below suggested asking for three months of payments from the seller.

Thanks for any feedback, and good luck, Brad.

Re: How to do this SUBJECT 2 Deal ? - Posted by John Katitus

Posted by John Katitus on December 22, 2004 at 01:29:47:

Sorry, I know you want a deal, but this is not one. Adjustable rate mortgages usually have an introductory rate to suck in the borrower, then at first adjustment they go substantially higher. There’s no equity here and prospects only for negative cash flow. Do yourself a favor, pass and keep looking. I speak from experience.

Re: How to do this SUBJECT 2 Deal ? - Posted by Bob In Indy

Posted by Bob In Indy on December 21, 2004 at 19:02:00:

This deal can be made to work, but it’s doesn’t look too attractive.
You need to have the open ended line of credit…closed.
You can have the seller refinance the entire amount into a fixed rate loan or have the HELOC converted (refinanced) into a fixed rate loan.
The seller must be living in the home to do this.
Personally, I don’t do subject to deals with a variable interest rate. Especially with the low rates that you propose…guaranteed, these rates will go up and your puny $70 per month will disappear like a popcorn fart!
If you’ve determined that the most you can get is $1k per month then I would walk from this deal.
You need to have homes where the cash flow is at least 20% of the monthly rent…meaning that every 5 months your profit would cover 1 month of vacancy.
You also need to have the seller give you at least 3 months worth of payments, after moving out.
See, this deal requires quite a bit of work and then it still is pretty shaky.
I’d walk, but I realize you wanted advise on the numbers.
Hope this helps,
Bob Meister

Re: How to do this SUBJECT 2 Deal ? - Posted by Atlanta_bob

Posted by Atlanta_bob on December 21, 2004 at 18:31:48:

Hi Brad:

Please be careful with the HELOC. Rumor has it that banks who hold the HELOC will call the loan due ASAP. You are also correct in worrying about the HomeOwner pulling more money out of the HELOC, even though he’s sold the house to you. Best to get rid of the HELOC before you buy.

The monthly cash flow in this deal ($70/mo) sure doesn’t look too good. Even the “apparent equity” (at/near $14K) doesn’t look too good. You might just want to pass on this deal. Just doesn’t look too good to me. Just my 2 cents.


Re: newbie follow-up questions - Posted by John Katitus

Posted by John Katitus on December 23, 2004 at 02:23:00:

First thing you should learn is NOT to do no equity deals. Don’t bother trying to figure out how to make them profitable - the best in the business can’t figure them out. Spend your time thinking about real deals.

Re: How to do this SUBJECT 2 Deal ? - Posted by brad

Posted by brad on December 22, 2004 at 24:45:40:

thanks for the reply. i realize the deal is very tight - but again, its the only one i got on the table so im working with what i got!

need to find ways to find more leads asap!

Re: How to do this SUBJECT 2 Deal ? - Posted by Brad

Posted by Brad on December 22, 2004 at 24:44:23:

thanks for the comments - I also heard somewhere before that Banks will call it DUE if there is a HELOC on the property but having trouble finding it again…

The reason I want to do this deal is b/c its the ONLY deal I got going on right now and I need to do something ASAP and not sit around waiting for the next deal

Re: newbie follow-up questions - Posted by Skip

Posted by Skip on December 24, 2004 at 02:56:00:

Thanks, John. Apparently most people agree with you. I still wish there was a way to profit from no-equity deals because they’re so easy to get. Don’t deals with equity usually involve downpayments and loans? Seller financing would be great, but for one thing it’s pretty confusing. For another, I’m concerned that most sellers will not carry back a mortgage, especially with a beginner such as myself.

Re: How to do this SUBJECT 2 Deal ? - Posted by David Alexander

Posted by David Alexander on December 22, 2004 at 12:47:35:


You need to focus your effort on learning marketing…

Getting sellers to call you…

And everything will change…

David Alexander

P.S. The best is around the corner… and after that… it still is…