Advantages / Disadvantages of Sub2 / Lease Option

[Vshal]

Hi Guys,

I have read a lot in these forum's was just wondering if the gurus could give some valuable inputs in regards to the Sub2 / Lease Option Deals (Advantages / Disadvantages).

Thanks

[Mdhaas]

That is a pretty large subject.  Maybe if you narrow your question down or become more specific, ???

[Vshal]

Narrowing it down...ok how about practical steps to take in a "Lease Option" deal  after finding a seller who is willing &  motivated ?

Thanks a Ton atleast someone replied to my post...

[reoconsultants]

Here is why I do not do subject to This is a true story Also just so it is known there is a guy selling a mentor program that give his advice and below I broke it down!        

  My husband and I do "Subject-To" deals. We had a "seller" decide that they wanted their original house back. This couple was behind on their payments by 6 months, and we talked with them for over 5 months before we had them deed us the property.  Another investor tried to sell the property outright, but didn't get even one call on it.
         The couple moved out and we paid up the back payments and put new carpeting inside. When we took over the property the house had a mortgage on it equal to or more than what the property was worth.
         The couple took our paper work to several attorneys. In one of their emails to us they said, "Our attorney helped us understand that what you did for us was a good thing." Several months later a mortgage broker contacted them, and told them that they could refinance again (that is exactly why they were in the trouble that they were in) they had refinanced the house every other year for a few thousand dollars. They told me that they couldn't resist all the phone calls and letters in the mail telling them to refinance. They had been in foreclosure and then bankruptcy in 1995 and were in foreclosure again in 2001. They could not afford the high payments.
         Well, they took their paper work to one more attorney. They told him that they didn't get any compensation for the property and that they didn't understand that they were deeding us the property (after all they only had a 6th grade education they explained to him) and then they had their attorney write us a letter saying that they were revoking our Power of Attorney and the Assignment of Beneficial Interest In the Land Trust.  In talking with this same attorney to let him know what really was going on, we told him that we would be willing to let them have the house back if they paid us the $8200 that we had paid out bringing their payments current as well as carpeting the house. He said that we were being very reasonable and he would relay the information to his clients.  (We were even willing to take a car, etc. in place of cash.  They told us that their car wasn't in their name.) The couple told their attorney that would be fine, slept on it and the next day emailed us saying that they had prayed about it and they decided they wanted the house back without paying us anything.  Their attorney said for them to pursue this case any further they must pay him some money.  Of course, they don't have any money.
         That is when they complained to the Better Business Bureau, the Real Estate Commission and the Attorney General's Office.  We handled the BBB, as well as the Real Estate Commission.  Then we got a letter from the Attorney General's office.  I called and set up an appointment with them to explain the situation.  Was I wrong to do that?  I was greeted by two women who did not hear a word I said. They told me that what we are doing is immoral and deceitful.  They said our website reads like an infomercial. Our ad that reads "We Buy Houses" is misleading, they said, because we don't really buy houses.  She said that we are scamming people and what is more, we were scammed by the people who taught us to do this.  They said that this way of doing business doesn't work.  I explained that I was sure that she has seen people in her office who really are taking advantage of people; however, we were doing everything ethically, etc.  She would not listen to anything I had to say. (I did tell her that I wish that the moisturizer that I use every morning that promises to erase my wrinkles, would.) Anyway, we parted company, and I was told to not do ANY real estate transactions until I heard back from her.  We hired an attorney who also told her that we would comply with her demand that we would not do any business until we heard from her.  Well, here it is 2 months later and we finally got a letter from her. Here is just a sample of what she is demanding: she wants a list of all the "sellers" we "bought" houses from "Subject-To" so that she can "set things right".  She thinks that we have lied to our "sellers" because she doesn't believe that people would ever sign our paper work if they knew the real truth: that the mortgage stays in their name yet the property is deeded to us, actually to a trust.  She has not mentioned one thing that she knows we are doing that is illegal-just deceptive.  She thinks that there "may be language buried somewhere in our paper work" that isn't fully disclosed to our clients.  Well, she has had our paper work for over 2 months.  If she hasn't found it, what am I suppose to do. There isn't any language buried in our paper work.

We feel very strongly that what we do in this business is very helpful and totally legal. We have saved many houses from foreclosure by giving people information so that they can act on their own behalf to save their own property.  We help to keep the housing market level.  When neighborhoods suffer a few foreclosures, the housing values of the entire area are adversely affected.

I guess I feel that we are being singled out.  We tried to help a couple who were in a terrible situation.  They are looking to get something for nothing and lying all the while. A couple of weeks ago I had to hire another attorney to stop this same couple from taking our tenants (who are in this house in question) to eviction court. They swore to tell the truth and then proceeded to tell the judge that they had a verbal rental agreement with our tenants so that they could collect the rent for two months, and then move into the property again. The case was dismissed, thankfully.

Does anyone have any suggestions? We feel that "Subject To" deals as far as our state goes are in jeopardy if this insanity with the Attorney General's office continues.

[reoconsultants]

Also I would like to add that $cash$ has a wondeful Sub 2 course! If you want to learn the correct way contact him!

[$Cash$]

Robb,

Thank you for your kind words.

I am very familiar with the above people involved, a little disclaimer here, they were not students of mine.  However, I did what I thought was right to help resolve the problem.

I spoke with people associated with the Attorney Generals office and the investor's attorney.

The issue was using in part Land Trusts as the Attorney Generals office considers it fraud to use one, in other words trying to hide ownership of a property.  Very understandable because every time you hear about one it is used to "HIDE" ownership, "HIDE" from the DOS clause, so someone who enforces the law would look upon this as fraud.  Poor choice of words to describe a Land Trust by those that advocate using them.

My reccomendations to both parties were to unwind the Land Trusts and have the investor put the properties in a Corporate Entity, which was satisfactory.  Pay a small fine and go on with everyone's life.  

It really doesn't matter what anyone's opinion of the law is just having the Attorney General's have you standing tall in front of them would be enough for most investors to pay attention and do things right with their papework before they start investing.

CYA letters are for weak paperwork, if your paperwork is state specific then all you do with CYA letters should you get sued is to give the opposing attorney more ammunition against you.  Let an attorney explain why, especially one who is good at litigation.

John $Cash$ Locke

PS: As an after thought I have been doing some fishing in the same state these folks got in trouble in.  Now from time to time I run low on "worm" money, these rainbow's love worms.  So last week I did 4 Subject To deals in this state and this week I am catching the limit of rainbow trout every day.

 

[Vshal]

k, thats that so im a lil nervous now whether to start investing or not....i think I will go ahead with it...anyways....
This is one disadvantage, i.e.  if the seller wants the property back....well...im sure there should be a way to deal with it....documents / deeds / notory / lawyers etc....??

Now the next topic about Lease / Option deals....

Thanks people, appreciate the time.

[$Cash$]

Vshal,

Glad to meet you.

"This is one disadvantage, i.e.  if the seller wants the property back....well...im sure there should be a way to deal with it....documents / deeds / notory / lawyers etc....??"

Yes, there is and it is having the deed in your name or corporate entities name, period, you own the property.  If you have properly executed a Subject To deal then I will tell you the Attorney General or the courts will have no problem saying you own the property.

In Lease/Options deals you do not have the deed so any lien or encumbrance against your seller, such as an IRS Lein or other court ordered judgement attaches to the property.  You give your T/B a lease with option to purchase, however let's say a IRS lein attaches to the property, then it is your responsibilty to deliver clear title.  If the lien is for $15K are you willing to pay it to give clear title, because I can tell you your seller will not going to pay it to give you clear title.

So unless you are willing to belly up to the bar, every method has it's pluses and minuses.

John $Cash$ Locke

[Vshal]

Hi Cash,

Im sure every method will have its plus & minuses but at the same time if there are minuses there would be a way to make them equal if not pluses.

I am new to this game of investing & trying to learn. I know that I want to do it for sure...."HOW" is the big question that is in the way of getting me starte.

I appreciate your inputs, what is the best method to get properties with lil or no money down.

Thanks

[$Cash$]

Vshal,

Probably the most asked question if not the question in everyone's mind who wants to enter this industry.

The best method of finding properties  with little or no down is to understand two things.  Marketing and Negotiating one without the other will keep you in the also ran category.

My recommendation for many years to someone who wants to start in this business is to purchase Zig Ziglars "Secrets of Closing the Sale".  Now Zig sold pots and pans but his method of doing this is one of the best I have seen.  This is how I started, all I did was substitute pots and pans for houses.

If you can comprehend what Zig is saying then you will be on your way to undestanding how to negotiate properties for little or no down money.

Once you understand this then you need to market to find these properties and your marking methods must establish branding (name recognition) to where sellers call you when they need to sell.

These are what I consider the basics a person should have an understanding of before they pick a method to start their investing career if they feel unsure about what direction to follow in the investing industry.  Kind of an inexpensive way to find out if this industry is right for you.

Also, a lot of the pro investors today started out Bird Dogging, which is what I call the No Fear, No Liability, No Money way to get started.  This gives you a chance to learn what a good or bad deal is.  Do not ever think starting this way is beneath a person,  the first bird dog I trained is a muti-millionaire because of real estate investing after training.

Desire alone in the majority of cases is not enough to get your started.  Some folks may have a desire to fly a 747, most do not take the time to find out how.

John $Cash$ Locke

[Vshal]

Hi Cash,

Appreciate your effort & being very clear about the issue of starting off in RE Investing.

I have the desire & time & motivation to get into RE Investing at the moment part time but I will be considering it fulltime in the future.

I don't mind bird dogging I don't mind making Tea if u like but I want to learn....im here to learn....& I will not give up till I learn....I know there is a lot to learn for a lifetime but I want to learn as much so that I can be financially free & not having to worry about my 8-5 job.

Hope you understand what I mean.

What is the strategy that you follow ?

Thanks again,

[$Cash$]

Vshal,

I follow my own strategy...Subject To, "that's what I do."

John $Cash$ Locke

[Vshal]

k, so you are experienced in "Subject to" investments. I am also looking to start off with the same or lease option lease purchase strategy.

I looked at Zig Ziglar which you mentioned, I have ordered for a real estate course a couple of days back which I have not recd yet.

I don't want to get into an Information Overload at the moment but I will order Zig Ziglar's course as well in the future after I finish this one.

How do you go about finding your sellers & buyers ? if you don't mind me asking.

Thanks a ton

[$Cash$]

Vshal,

The Zig Ziglar book is about 10 bucks and not a course, just some strong negotiating points to be learned.  Now that I think about it for just 10 bucks and it could help a person become a strong negotiator, it is to inexpensive, a person should be spending thousands of dollars to hopefully learn what this book will teach you.  What the heck is wrong with me.

How I started...did not even know which one of the Midget Twins was Careton Sheets, never read a course or participated in a discussion board till I had done over 500+ deals at which time I learned what I did from a discussion board, thus Subject To, "that's what I do."

I just returned to Nevada from Florida where I sold my radio stations.  Never using a realtor to buy or sell a house, I ran an ad "Family Needs House, 4 bedroom, 3 Bath, Pool, City View.  This was the ad that started it all.

Started looking at houses from the callers in response to my ad.  I found the perfect house after looking at several of them.  The owner started telling me about how he could not make the next house payment because his son who was living with him and helping make the payments moved out.  I told him it would take 30 to 45 days to purchase the house, he said "you don't understand I need out now."  

So I thought since the house had about $50K in equity I would make and offer for his equity to give him moving money, then figure out how to tie up the property.  I talked with a real estate attorney friend of mine and she said well just give himthe moving money have him sign the deed over to you and make the payments on the mortgage.  The attorney gave me the state specific paperwork to do this and I did my due diligence for liens and encumbrances then purchased the house.

At this time it dawned on me what about all these other calls I was getting why not find out why they are selling, so started to set appointmenst with these folks and started buying their houses the same way.  I figured there are alot of folks who have money to purchase but not the credit.  So I thought why not sell to those folks with a Contract for Deed, get a good down payment, raise the interest rate for some nice mothly passive income and add two years worth of appreciation on the back side when I would have the buyers re-finance the property.

In a very short time I discovered a pattern of these type of sellers or what there motivation really was, how to market to them and make a presentation that had a built in close to get the property for what I call "U-Haul" money or moving money.

I did have to change marketing strategy's because I would see all kinds of "I Buy Houses" ads showing up in the newspaper then slowly dwindle back to just a few of the pro investors ads  in town who had been doing creative real estate deals all along.  We referred to this as the "Rubber Chicken Circuit" or course writers coming to town selling their how to become a millionaire in thirty seconds or less with no down payment, no money and cash back at closing deals or various other ways that their marketing experts came up with to sell to the new folks their courses.

Not rocket science just a few of the basics and a person is on their way.

John $Cash$ Locke

[Vshal]

Hey Cash,

That is really a good head start, I have designed n AD the typical "I BUY HOUSES" ad but not yet distributed it....I guess its the fear of the Unknown which is stopping me from doing that but on 2nd thoughts you are rite "I BUY HOUSES" is a pretty common ad & I have seen it in the papers as well so I would like to try something different. I will get my muscles working on that one.

I know you have answered a lot of questions and have been really patient with me, I truly appreciate every piece of reply that you have written here in great detail.

Is it illegal to distribute flyers of I BUY HOUSES ? I am in Canada & need to get hold of an attorney to check that but I don't think it will be illegal to do so.

If you dont mind can you give me your email address where I can reach you, hope I am not asking for too much here.

Thanks again,
V$shal (Vishal) he he he he just picked that up from you....