...need "subject to" in my toolbox. - Posted by Brad (GA)

Real Estate Investing
#1

Posted by BillW. on December 11, 2000 at 09:41:14:

Brad, Other than the obvious “as low as possible”, to make a decent profit, you need to be buying for at least 15 to 20 K below retail MINUS any needed repairs. As the house gets more expensive, the gap needs to be even wider due to the increased carrying costs. The closing costs, costs of the sale and carrying costs , even on cheap houses, eat up the profits quickly. It is a common mistake, especially for some people new to the business, to pay too much going into the deal because they want to get started so bad. Often, this will result in a loss on the project and then they say “This stuff doesn’t work”. Everyone new to the business should take extra care not to jump in on the first deal that comes along without a thouough analysis of the profit margin. Buying with too small a spread can be a disaster.(This deal has too small a spread, in my opinion.)
BilLW.

#2

…need “subject to” in my toolbox. - Posted by Brad (GA)

Posted by Brad (GA) on December 11, 2000 at 05:42:16:

I found a house that has been abandoned for 6 months. (Nice) Owner lives in Germany. I offered to pay full price thru L/O and he doesn’t want any part of it.

Now I’m left with what to do next. Now I’m thinking “subject to”. Now I know the basic premise behind a “subject to” deal, but I’ve never had to structure one. I could sure use a mentor right now. Can anyone, please oh please, help with a subject to offer?

114K selling price
0 equity (owner just wants to pay off mortgage and realtor fees)
Comps at 115 to 120K

I’m still gonna try the L/O, (because I bought Bronchicks course several months ago) but I think the “subject to” deal is best. Any other options I should be thinking about? Thanks!

Brad

#3

Re: …need “subject to” in my toolbox. - Posted by dewCO

Posted by dewCO on December 11, 2000 at 17:08:22:

You need a MOTIVATED seller to do these types of deals. Is this seller motivated? You don’t say what his answer was, other than no to LO. Is he motivated, if not, probably doesn’t matter what you propose. You need to know what HE wants and SOLVE his problem.

#4

Re: …need “subject to” in my toolbox. - Posted by JCPerry_NH

Posted by JCPerry_NH on December 11, 2000 at 09:18:00:

Brad –
I think that your big selling point is going to be – Mr. Seller you can get out of all payments, taxes, etc. (this is as long as you agree to them) –
What happens is this…Brad, you buy the home for the mortgage balance (you take over the loan “subject to”, like you said). He has no equity, so you give him nothing above that.
You have him deed the property into a land trust (or PAC trust, although I don’t know much about them).
Seller then transfers his beneficial interest to you (or your corp, etc), and therefore you become the owner.
You can then have any of a few exits…
Owner finance at an above market price.
Rent it out.
Lease Option it out.
All of these depend on your numbers and whether or not the property will support one over another exit.
BUT back to your question…
First of all, did you find out why the L/O isn’t an option… Does he understand it truly, or does he only have a vague idea?
Find out the sticking point… (maybe he wants to have it sold and not have the chance of taking it back if you don’t buy)…well, then the “subject to” would work great…
Nevertheless, if you have more q’s about the way to structure the subject to deal, email back – personally or on the board so everyone can get the info.
Good luck,
Jason Perry

#5

What is your goal? - Posted by ken in sc

Posted by ken in sc on December 11, 2000 at 07:27:37:

Why are you buying this house, if you can get it structured. Does it cash flow? I hope so, because $1,000 - $6,000 below market is not enough for me! Just because you can buy a house, doesn’t mean that you should. Be careful, a better deal may be available next week.

Good luck.

#6

Re: …need “subject to” in my toolbox. - Posted by BillW

Posted by BillW on December 11, 2000 at 06:56:39:

Brad,
Why would you want to pay full price?
For “subject to” deals, you simply need a clause in the purchase agreement that says, “Buyer is buying subject to existing financing.” This tells all concerned that you are not getting a new loan and also are not assuming the current loan. Don’t agree to any clause that says “assume and agree to pay”.
Also, for general info, most bank deals in the last 15+ years have due on sale clauses which allow them to call the loan due in the event of subject to deals. If you’re still determined to do this deal, you might check out the PACTrust method. Look in the archieves for info or post your question for the PACTrust experts on this board.
But, back to my main question, why pay full price?
BillW.

#7

Re: …need “subject to” in my toolbox. - Posted by Brad (GA)

Posted by Brad (GA) on December 11, 2000 at 08:43:27:

Me, pay full price? Heck no. I guess I just don’t understand the “subject to” as much as I should. My intention was to get the house and lease option.

Just for the sake of argument, if I were to do a “subject to” with the same house. What is the buying price that I should be looking for?

Thanks for your advice!