SUB2 vs Purchase

[Ohioinvestor]

Ok, i hear all this talk about Subject to's and how they are the way to go. I don't have any problems with banks (other than them worrying about me being overleveraged) and can funnel downpayment money from alternative sources in between buying properties.


Why would subject 2 be so much better than owning? What are the risks involved vs the risks of buying a property outright?


I guess i could set up an LLC to purchase these sub 2's from people, and if for any reason i was unable to pay my company would take a hit only if they filed suit against it. I don't really understand the whole picture and why its so appealing to people. Also how does the process work and any other info.

[Admin]

Ohioinvestor,
Trying to answer you in depth would take a whole course.  I'll attempt to go the bullet point route off the top of my head.

Pro's:
no qualifying
fast
not on credit report
inspection, survey, appraisal, title policy, etc. are optional
no hitting cap on FNMA loans
pitched as "no liability", perhaps so with one or two, perhaps not with multiple defaults in my opinion

Con's:
not as understood by any normal players in real estate
if things went bad, it's not even "traditional" creative
newbies with no cash and no credit shouldn't be doing them, but are
need to have good docs to make the transaction safer
qualifying for traditional loans is fun, trying to explain props not on credit
need to be able to refi if loan called (not necessarily a negative)

Basically, it's just another form of owner financing.  Existing note and deed of trust/mortgage remain in the prior owner's name.  Essentially, you're just taking over payments.

[Ohioinvestor]

What are some of the concessions you may make to assist the people about to lose their home. Do you actually give them money to move out? do you deal with the bank at all? If they are behind on their payments how do u handle catching them up but not getting the bank pissed and calling the note due? and last could u recommend a good book for $30 or so that would give me the in's and out's generally. I am a quick learner so every aspect doesn't need covered, just the front end and what not.

What are the exit strats you use most often? Do you buy and hold and treat it like a mortgage note you are holding or go for a quick sale? What type of ad's do you recommend using to attract interested people? Do you search for forclosure filings and then chase them down?

[$Cash$]

Ohioinvestor,

Glad to meet you.

I was thinking what book you should read for $30 that will get you rolling doing Subject To deals.

Then it dawned on me you can buy the Good Book and start Praying for a deal because this is the only chance I see of you doing a deal the Subject To way without the proper knowledge and education.  It would be called Divine Guidance.

This is a business and to go off and say the seller can sue my company if it goes bad is not the way to morally and ethically do business.  You will soon learn if you want to build a reputation as a responsible investor to do business with then educate yourself on proper business standards.

How you enter this great industry is up to you, there is a right way and wrong way, so in all sincerity I hope you choose the correct way.

John $Cash$ Locke

[Admin]

Ohioinvestor,
Yes, I've given folks money.  Yes, the sellers have paid me (you didn't ask, but I figured I'd throw it in).  Yes, I've dealt with the banks on Sub2's.  The bank doesn't care who provides the arrears.

There's not a book as far as I know that does more than touches on the concepts involved.  Typical exits are selling O/F or L/O.  I've also done rehabs and wholesales with Sub2.  It's just a technique like any other.  Sometimes it's appropriate and sometimes not.

To me the only real difference is the docs used and the presentation.  Sorry for the abrupt answers, but there's no way to provide a detailed "how-to" on Sub2 in a post.

[Ohioinvestor]

TRandle:

Thx the info was helpful and i've already started reading up on it a little. I'm sure i'll run across some other literature sooner or later. I guess my biggest mental block regarding Sub to's is me just not being able at first to accept the concept of buying the house (having it deeded over to me) when a lien is in place from a different person. Buying property is nothing new to me but in the past i could never see myself lease optioning a property and that is sort've how i saw sub 2's at first. But once i got over my own mental block regarding the Sub to's i can see how it is much eaiser and benificial for you to go this route vs an reg purchase. And it obviously isn't a L/O since you carry the Deed.

1 more round of questions if you don't mind.
I assume you use a land trust to record the owners beneficiary portion and you take the trustee and then the owner signs over his interest to you. I read this hinted somewhere earlier and i think it was done to make the insurance/loan from triggering a due on sale? Or is there a better way?

How do you handle mortgage payment tax deductions? the bank is going to send out info to IRS and the originator of the lien. Do you and how do you get the deductions you have paid.

Cash: Buddy you have it wrong man. I understand this is probably your main direction of investing so you are protective over its rep. You missed the entire context of my previous post. I'm not worried about defaulting on anything anytime soon. I'm not looking to get into sub2's because i would lack liability in terms of being unable to afford paymetns/repairs etc over the term of the sub 2. I'm not looking for a way to defraud a bank either. I'm trying to grasp why people prefer sub 2's. One thing that came to mind was the lack of liens against oneself. If something was to go wrong and I did fail then the mortgage company would still go after the mortgagee not me so in turn the mortgagee would then seek restitution through me/my company.


My pockets are deep, i pay out a great debt monthly in loans as it is now for my properties. I don't ever plan to default on any of my loans but I cannot say that I haven't looked at the risk at one time or another. While i look to see the level of liability and damage possible doesn't mean i'm looking to exploit that. Any real investor in any form on any level of investing (stocks/real estate/notes etc) will investigate his personal and business level's of liability and risk, if he is even remotely intelligent. I'm always prepared for the worst but i'm fighting vigoriously for the best.

[Admin]

OI,
I had a similar mindset when first starting.  Coming from a strong financial background, Sub2 was difficult for me to "believe" as well.

Yes, I use a land trust and assignment of beneficial interest.  If you want to make it simpler, you could just skip the assignment and have your entity (or whatever) be the beneficiary from the start.  Yes, it makes handling insurance matters easier, but the primary reason is privacy.

You just change the mailing address on the loan and all docs come to you.  I'm making the payments so I'm entitled to the deductions.  In many instances the "appearance" is that you're managing the property for the borrower and in a way, you are.

Some investors use third parties to collect rent/payments and make the mortgage payments.

[David Alexander]

is a technique, a tool... not a business model....

For Instance...

Were buying houses at the moment...

Some subject to the existing financing... and some with cash...

From a new purchase (flip)... some are being financed by other investors...

Some are being financed with loans...

There are books on the subject at your local bookstore...

Bronchick come to mind...

You will also need further education....

Get that from Courses, seminars (preferably not street seminars), and other investors....

I disagree with Tim... that newbies with No Money etc... shouldn't do these deals... I just believe... one should be studying business first... and how to do the deals second...

For Instance... every time I approach a deal I look at it from the stand point of little to No Investment of mine...  It's just good business....

Good business also requires you learn to generate cash at a whim...  to solve financial hurdles that come up.....

As well as do deal that make financial sense for what your doing at the time....  will this deal improve your situation....

David Alexander

[sherrys office]

I'm a new investor, and I learned about sub2 and lease purchase from a ebook called "How to Buy Realestate with no money bad credti and no job."
It's written by Joe Crump. It's helped me alot along with the mentor program he has.

[David Alexander]

How did it help you....

What have you learned....  More specifics....

Have you bought any houses?

David

[sherrys office]

We haven't been at it very long, and I haven't done a sub2 yet, but that's what I'm focusing on. I seem to get more rehabs and people going into foreclosure. It's been a trial and error process so far!!!