Subject-To Deals

[Mark in St. Louis 0]

I'm wondering if anyone out there has done any subject-to deals where the amount needed to bring the mortgage current is substantially more than any option deposit you could get from a tenant-buyer.

 

Where is a good source of funds for this money?

 

I don't have it so I need to borrow it.

 

Should I just advertise in the paper for "Investor Needed", offering a short-term investment of 2 to 3 years, paying an interest rate of say 10% or 12%?

 

I guess they would then have to receive a second mortgage & promissary note to secure their investment....correct?

 

Just wanted to see if anyone else out there has encountered this, and what you did to get the bucks?

 

Thanks!

[MichaelC 160]

Mark, my general rule of thumb is I will part with the equivalent of about one month's rent. More than that and the deal had better be mighty fat.

Another line of thinking is that if you need to borrow the funds for the downpayment you may be cutting it too close for comfort. What happens if an unexpected expense pops up? Or an unanticipated vacancy? You best have some reserve funds in place for the unexpected things that will eventually rear up and bite you.

Those caveats aside, your question was where can you get the funds. The advertisement you suggested is a good starting point. What about putting the word out now to all you know who may be looking to invest in real estate but don't have the know how? Friends, relatives, coworkers, associates, etc. In other words, marketing and networking. You can also try your local REIA for investors and partners.

[Mark in St. Louis 0]

Thanks Michael.

 

Here's the thing. This is a real potential deal....not an example.

 

These people are going to just move away next weekend and let the bank take back the house. It is in the beginning stage of foreclosure. The trustee/law firm already has the file and has started the process. Sale date has not been set yet. I confirmed with the law firm today that the sale will not happen in Dec. Will probably be sometime during the first half of Jan 04.

 

They (owners) said if I want it they will gladly deed it to me subject-to and let me try and do something with it. They will be in town next Friday & Sat after Thanksgiving, and then will be gone for good.

 

Here are the house details:

 

3/2/2 ranch, 1500 sq/ft (bread & butter home)

Its in a good area with above average appreciation rates.

Only 3 years old & needs zero repairs

 

Here are the financial details:

 

FMV: $170,000

Loan payoff thru 12/23/03 (got this from law firm/trustee today: $149,000

Amount needed to reinstate loan, vs paying it off (also thru 12/23/03): $9,004

Monthly pymt (PITI): $1397

 

I was thinking of going ahead and letting them deed it to me, and try to sell it retail, either FSBO or via auction for 10% below value. If I can get it sold before the auction date I might still be able to pocket $4000 or $5000 ,and have no out of pocket expenses, or risk, other than marketing. Closing costs here in St. Louis only run about .75% for sellers.

 

Of course I would explain to the owners/sellers up front that I can try to get it sold, but make no promises. I mean, heck, they are going to walk away anyway. Shouldn't I at least try? Would you?

 

Do you have any other ideas?

[-Tony- 0]

Mark,

 

Talk to the bank see if they will work with you as a property manager....

 

3k up front

3k Over the next year ($250 x 12 month)

4k balloon in 15 month (they make 1k extra over the 15 month)

 

Then have the owner slip the property into a trust and sign over beni interest to you.

 

OPTION #1 L/P it twelve month 187k (or what ever works) collect 5-6k option which still leaves you 2-3k upfront except what you can for rent to cover the $1647 mtg payment. If it sells in 12 month, pay the bank and collect your $$. If it doesn't cool collect more option $$, charge more rent, Charge more for the house, pay the balloon payment reap the cash flow...

 

OPTION #2 Sell on CFD 187k 9% down collect 17k with 30 yr amortization @ 9% monthly $1650 PITI with 18-24 month balloon

 

OPTION #3 Straight option like you said but I don't think there is enough room to sell to another investor most want to buy at 80% (136k), flip for 155-160k retail.

 

Just some thoughts,I don't know if they will fly but it gives you some options....

 

What are the market rents and appreciation?

[MichaelC 160]

Mark, the numbers don't appear to be great in terms of the spread you're working with. But, there is still some meat on them bones. Enough so that this is worth taking a further look at.

You are working with about a $20K spread. Not enough so you can dramatically drop the price, grab the buying public's attention, and get a quick sale. On top of that we are entering what is historically the slowest time of the year for real estate sales. With these two caveats, is the risk to reward ratio one you can accept? It seems it comes down to are you willing to risk some of your marketing budget to try and reap some profit, ($2K to $5K?).

The $9K required to bring the loan current is out of the question, as far as I'm concerned. We talked about this in my previous reply.

What about the rental market for this property? Will it cash flow with the numbers you quoted? If not, then you have eliminated other potential investors from your pool of potential buyers. This leaves you with only the end-user, retail buyer types who, again, you are asking to pay pretty much full price during the Christmas season. An uphill battle, Mark.

The other side of this is that, as you noted, your risk is limited to your marketing expense and the use of your time. So, you're safe in that regard. And, the homeowners are willing to let you try this are aware of all the details and possibilities. I'll say again that for me it comes down to the risk versus the reward. Time and marketing expenses versus the potential pay day if I succeed.

[Guest hakim craddock]

give the information you provided. i thikn you should just let this one pass by. if you rent the property the 250k permonth that you will have to pay to the bank if they accept your offer will cut into your cashflow for that first year. then the balance of 4 k that you will be paying after that for 15 months again cuts into cashflow. what if some shit pops up and you have to make some repairs or something of that nature. then your screwed. ide just keep it moving.