Subject 2- Profit

[lee00058]

Is there a rule of thumb on calculating a sales price (your profit) or markup on the resale of a subject 2 transaction.  I'm talking about an actual sale and not a lease/option transaction.  Was just wondering how much value can be placed on the fact that they are in a position to assume the loan in addition to the value of the property. Thanks in advance for any input.

[Shawn M. Audlin]

I'm a bit confused by your question.  I understand that you are saying selling it resale to someone, not tenant/buyer, but I don't understand what you mean by"that they are in a position to assume the loan".  Can you rephrase the question.  I am assuming you are taking the deed "subject to", and are then wanting to add  your profit to what you are paying, and then sell it again.  If this is the case you will need to get the property with a fair amount of equity to leave yourself a profit (especially if your using an agent).  

Regards, Shawn[/quote]

[lee00058]

It is a "subject to",  I am selling it with the buyer assuming the loan. The down payment is to be paid to me.  As far as the price goes I am talking about the equity in the property and the added value given because the financial arrangements are provided.  Pretty common situation with an owner finance deal and although this is a "subject to" you're providing them with the loan capability.

[Shawn M. Audlin]

Thanks for the clarification.  If I understand you right, the new buyer is buying your position in the sub2.  So you are asking what your mark up should be.  If I'm following you correctly, I'm assuming that the person who is taking your position is either another investor, or a thirfty homebuyer.  Either way you are offering a house with no bank qual., no immediate closing costs, nd from what you said a fair amount of equity.  There is really no formula for the mark up on this, if I were in your position I would say you should walk away with a min. of $10k, if there is a substantial amount of equity, I might leave them with a 10-15% of equity left and take the rest as your profit.  If you were in reverse roles, would you as an investor still find it a good deal on the flip side?  Pay yourself well but don't get greedy.

Win-WIn Investing to you, Shawn

[Heather_Tx]

I am only 10 months or so into investing, so take this with a grain of salt...
  I have taken over one sub2 deal, and sold it Retail.... but when I retailed it I made my buyers get a new loan.    When I told the seller I would make sure their payments were made on time and the loan would be paid off,    if I had passed my sub2 option on to MY Buyer, how could I have known if my promises were kept or not ?

  I like to take sub2, but I won't sell that way.  When I take on that responsibility, I can't assume that MY buyer will be as ethical as I am, unless it is someone I have done deals with many times before.  As of to date, I only have one person I would sign over my sub2, and my word on payments getting paid.    And I would flip it just like any other deal, it might be nice to get an extra 1-2K, but not a must for me.....    

  In other words, I would only do sub2 on my personal buy and holds, or when upon selling they get their own financing.  It just makes the payments easier for me until I get it resold, and my reputation and ethics don't get compromised in the end if someone else decides not to pay.

Hope this helps,
Heather Zaal