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Guest Bev

Subject 2

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Guest Bev

Greetings Mike Pinkerton and Associates,

 

Can you kindly if at all possible explain the Subject 2's stradegy from an investor's point of view and from the legalities point of view when applying this technique as an investor.... please give me the good the bad and the ugly .

 

 

Thanks,

 

 

 

Bev ;)

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Bev,

 

Your question brings me waaaaaay back to my law school days when I had a Constitutional Law professor who was notorious for his impossibly comprehensive test questions. One student-wit parodied his tests something like this: "Describe the universe and give three examples. No credit will be given for incomplete answers." ;)

 

Unfortunately, Bev, your question reminds me of one of the good professor's Con Law tests! :o But here goes..."Subject 2" as you put it, has a variety of applications in real estate investing.

 

Perhaps the most common usage is when the seller's mortgage is left in place and the buyer takes the property "subject to" the existing mortgage. There is no actual assignment. The advantages include no loan qualification, closing costs, delay etc. In addition, because the buyer has not assumed the mortgage, he or she is not liable on the mortgage if there is a default. Not to say that this is a free lunch for the buyer and there won't be repercussions if there is a default.

 

In the lease purchasing arena, "subject to" clauses in agreements can be used many ways. For example an entire deal could be made "subject to" the buyer finding a tenant for the property within a certain amount of time. Great for the buyer, but the downside of conditioning the buyer's obligations in this way is that the more it's done, the less likely it is that the seller will agree to enter into the agreement. After all, the real purpose of the "subject to" clause in this context is to lessen what the buyer is really promising to do. Sooner or later the seller will probably figure that out and poof...no deal. :blink:

 

That's the short of it. Books have been written on the long.

 

Mike P. ;)

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Bev, good to see you out of the bar. I was beginning to think you were a wheat lush. :lol:

 

baby steps: out of the bar next register, okay I will stop.

 

The good short and sweet:

 

you own

you get tax bennies

more options for your out strategies

no worries of seller trying to back out

no worries of your t/b getting qual when it is late in your lease (sandwich)

 

 

The bad:

 

if you don't buy right and the market goes belly up, your stuck with it

if you can't find a t/b you have to make the payments (no give backs)

if the loan is called due, morally you are responsible

? you really should have more of a reserve built to buy "Sub to"...

 

Those are off the top of my head hope it helps

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Guest Guest
Bev, good to see you out of the bar.  I was beginning to think you were a wheat lush. :lol: 

Thanks big boy I'll deal with you in the bar :lol:

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Tony,

 

Thanks for your input...much appreciated!

 

Mike P. :lol:

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