OfflineBuying Real Estate Subject To The Existing Mortgage Part 3 Of 3
By: Donna R.
The author has permitted the reprinting and redistribution of this article.
If you are a real estate investor, taking over a property subject-to the existing mortgage, you want to be sure that your exit strategy will work with this existing mortgage. The seller will be depending on the buyer to make the deal work. It is very important for an investor buyer to do their due diligence to insure a profitable deal.
If you agree to buy a property subject-to an existing payment of $925 per month, and hold it for rental, be sure the rent will be higher than the payment and expenses. This sounds like a no-brainer, but sometimes people get so caught up in the idea of buying property without having to qualify, that they forget to make sure that the numbers make sense.
If you are paying $925, but the property will only rent for $875, that ain't such a great deal is it? Just because you can buy a property "subject-to" does not mean you should. Make sure the numbers work for the exit strategy you intend to use. If you are going to fix and resell, you should check sales data in the neighborhood be sure you can sell for an amount that is higher than the payoff on the existing loan.
Don't forget to include all of your anticipated expenses. Those may include closing costs like attorney fees, doc fees, insurance, title search, etc. You'll get your closing costs estimate from the closing attorneys office.
Your offer price plus all repairs and expenses should not exceed 80% of what you know the property is currently worth. (Note I did not say what you "think" the property is worth) You must double check and be absolutely as sure as you can be. In today's market, with high foreclosures and lots of inventory, buyers have a much better chance of getting a super price on the property, but if the seller owes more than the house is currently worth, buying subject-to does not make sense. You have to get the market value right, or you may not be able to complete your exit strategy.
Buying subject-to the existing mortgage can be a great way to invest in real estate, or buy your own home, even when you don't have good credit. Buyers should make sure that the existing mortgage numbers are affordable and that the income will cover the payments. This will help insure that the subject-to transaction will work out well for everyone involved.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
An Excellent point that was brought up was?........Just because a Homeowner is Willing to let you buy thier house "Subject To" Does NOT Mean it's Automatically a "GOOD" Deal! So Many Investors get caught up in the NON-QUALIFING Part that they are willing to do a Negative Cash-Flowing Deal.....WHAT!??! Remember numbers are the TRUTH, If the Numbers don't work, Then the Deal Dosen't Work! By the way, the Author of this Article is Pretty Dead-On with the Formula aspects of the "Subject To"(I'll actually go up to 85% of ARV, "IF" the properties "RIGHT"). This is(In My Opinion) The BEST way to Aquire Real Estate, Theirs just so many PRO's and VERY Little CON's, If you don't have this "In Your Bag Of Tricks", Get Studying, cause "Subject To's" WILL be your Next "Best Friend", SULLY
YOUR HERO, SULLY
the big problem here in Fl. is that most owners owe way more than the properties are worth. So I`m concentrating on the REO`s and researching all past sales for the property, while also looking at the past assessed values and comps. What I want is a price thats close to the values and comps before the values inflated. Values may not fall back to that level,but since they are saying values are at the 03 levels, I know I have a workable deal. So I`m finding nice REO`s that are going for 50% to 60% ARV in bread and butter areas.
Thanx a million sistreat, my day's of buying RE is inching closer and closer.
Cheers!!!
Thanks for this series. Great stuff, and it does seem tailored for a lot of properties/sellers today.
I am curious about what reactions people are getting from the sellers when they are presented with these offers. Considering the "Due On Sale" clause, I would think there's some hesitation on their part. Perhaps this should be a separate post but I would love to hear what kind of acceptance to rejection ratios investors are getting from sellers.
BTW: I'm still trying to find a post explaining the paperwork of "Assignment Of Mortgage" since I don't see the difference between the two. If anyone can point me in the right direction that would be great.
Steve
"Do something you LOVE and you will never work another day in your life."
"Nothing can ever stop you without your permission."
"So long as you haven't quit, then you haven't lost."
I have situation, and I need your opinion, I have two homes that is upside down right now and I am not sure how to reconstruct this into a way I can keep them. One was bought at $400,000. now worth $230, 000. I whould like to find a technique to use on this I am desperate.
Thanks
Sonia
The only way to keep them is to keep making the mortgage payments. You could talk to the lender to find out if you have any options. If you did not want to keep them and you qualified, you could short sale them.
Michael Mangham
MD Home Acquisitions LLC
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
Thanks
Sonia
Like Michael says to keep them you have to keep up the payments but if you are now or are willing to rent them out perhaps you could get enough in rent to cover those payments, or at least enough that leaves you with a small enough negative cash flow that you might be willing to pay for the short term.
Best of luck with that.
Steve
"Do something you LOVE and you will never work another day in your life."
"Nothing can ever stop you without your permission."
"So long as you haven't quit, then you haven't lost."
Does anyone know what sort of closing costs would be associated with completing a sub-to deal?
Thanks!
-steve
I always use a title company to close my "subject to" the same way that a I would close on a home in the traditional manner. In that manner, a third party is involved and it reduces the prospect of the seller coming back and saying they didn't know what they were doing.
Always Looking to Acquire Houses | Always Looking to Amaze Investors
...and then pay a lower amount?
Ex:-
(a)Seller agrees to sub-2 for existing mtge payment of $800.
(b)Buyer signs for 2-years, but adds a contingency that Seller would supplement $250, while Buyer pays the balance of $650 per month.
(c)After the 2 years, Buyer sells and pays off Seller's original mtge.
Benefits to the Seller: lower payment and credit remains stable.
Benefits to the Buyer: able to maintain payments and presumably rent for a small profit.
Just wondering if anyone had ever done a sub-2 like this or even iif its possible. Btw- the bank is still none-the-wiser, and they keep getting paid.
Win/Win....right?
Persist...until.
"If you STAY ready, then you ain't got to GET ready". -Will Smith-
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