Re: Thinking out loud… (long) - Posted by JohnBoy
Posted by JohnBoy on July 11, 2001 at 08:15:17:
Bryan,
You said you have read the Sheets course. I’m assuming you have the course then? You should already have a contract to use that comes with that course to get the property tied up under contract.
You then talk about wanting to do sandwich subject to deals. I think you meant you want to take over properties subject to and then sell them on a L/O or contract for deed? Doing a sandwich subject to would entail taking over a property subject to and then selling to your buyer by letting them take it over subject to. Not that you couldn’t do it this way, you just need to do it properly to protect yourself. That means if you were to allow your buyer to take it over subject to from you, you need to make sure you get a release of liability signed off from your seller to release you from your obligations to him. Otherwise you remain liable to the seller regardless of whether your buyer was to keep paying or not. Once you let your buyer take over subject to they would then own the property leaving you in the middle with no ownership rights and still responsible to the seller under your agreement with him. This why you would want to get a release.
If you take over subject to and then sell on a L/O or contract for deed you remain in control of the property by retaining legal ownership until your buyer pays you off.
If the seller is concerned about paying a commission to a realtor then this usually means one of two things. He either doesn’t want to give up any of his equity which means he’s looking to get it all, or he doesn’t have enough equity in the property to cover the commission. If he’s looking to get his equity then he doesn’t sound motivated. If he doesn’t have the equity then this could be the ideal subject to deal.
As far as how much principle will be paid down over the next 10 years, you would need to read the mortgage and note he has on the property. Go by the origination date and run a amortization schedule based on the loan amount and interest being charged. Subtract the number of months he has already paid on the loan to see where his balance is now and then run down the chart another 180 months to see where the principal balance would be in another 10 years from now.
If you’re plan is to sell these with owner financing then why do you care where the balance would be in 10 years from now? You don’t want to carry the financing that long with any particular buyer. You want to keep your financing for short term periods to avoid having to foreclose against your buyer in the event they default on the payments. If a buyer doesn’t pay you off within a year or two then you can rewrite a new contract or start over with a new buyer. Keep the contract with your buyers short term.
If you plan to create notes to sell at closing you are going to have to qualify for them just the same as you would getting a loan from the bank. If you’re willing to put new financing in your name then why bother when you can just go to the bank and get your own loan without any one having to take a discount on the note??? Keep that discount for yourself by reducing that amount from the purchase price and save yourself some money. If you can’t qualify for a bank loan then chances are you won’t find a note buyer that would be buy the note from the seller since you will be the borrower on the note. If you did find someone to buy the note the seller would have to structure it at a higher interest rate and take a steep discount on it. That’s assuming you can’t qualify for a traditional bank loan.
As far as holding these for now as rentals, how much time is left on the leases? You also said he claims to be tired of these and just wants rid of them. It may be because the tenants aren’t paying the rents on time or may be behind. If that’s the case you can evict them in the near future since chances are they will be late paying you also. Another option is to approach the tenants and see if they would like to own the property instead of just renting and sell it to them.
If the leases only have a few months left on them it would give you time to market the property for a buyer while the tenant continues to cover your payments while paying rent. Just tell them you won’t be renewing their lease because you’re selling the property.
If they have 6 months to a year left on the lease then you will just have to honor it until it expires unless you were to work out a deal with the tenant to buy the property from you. If they don’t have any cash for a down payment and if they have decent credit they could get a signature loan up to $5k from a finance company or they might be able to borrow it from a relative or take a cash advance against a credit card.
As far as what to put into your contract to tie up the property while you figure out your options, what ever it is you need! What do you need? That’s what you make the contract subject to, verifying and approving of the things you need to check out.
Do you need some time to inspect the property? Then a subject to buyers final inspection of the property by such and such date clause would be something to put in the contract.
Will you be obtaining any financing? Then a subject to buyers obtaining favorable financing subject to buyers approval clause would be something to put in the purchase contract.
Basically, you put what ever it is you need to check out and approve of before closing the deal. Those would be your escape clauses. Of course, you don’t want to get carried away or the seller will think you’re some kind of goof and you’re not serious about buying the property. So keep it within reason on things that matter.