I’ve recently signed up for one of those mentorship programs that primarily deals in sub2, owner finance, options, lease options etc. However I find that even when I read the information I’ve been given and look on the internet for simpler explanations I read them but for some reason can’t seem to get my head around what’s actually going on. Are there any websites that lay out what sub2, owner finance, options and lease options all mean and how they work in layman’s terms or could someone here either direct me to or write out a good description or definition of what each one is and how it works?
I do all these for a living and I think the first thing to keep in mind is that each of these methods involves creative finance in one way or another.
They either…
- Facilitate financing…
- Allow time to justify getting financing, or…
- Allow time to obtain financing.
Meantime, Sub2 is first a “financing” tool, before it’s an investing strategy.
Leases/Options are generally used to control real estate, while giving the Optionee/tenant/buyer first right of refusal in the purchase. That is, the Optionor/seller/landlord cannot sell his property to anyone else, until the Optionee/tenant/buyer walks away from the deal.
Sub2 involves…
- Buyer taking title to a property with full ownership and control.
- Buyer assuming informal responsibility for the loan.
Lease/Options…
- Gives Optionee/tenant/buyer exclusive control of a property, without ownership, or liability, for a given period of time…
- Obligates Optionee/tenant/buyer to make rent payments (and sometimes option consideration) for a given period of time…in return for the right to control the property…
- Gives Optionee/tenant/buyer the exclusive right to buy the property, within a specific period of time…
Options…
- Gives Optionee the exclusive right to buy a property, within a specified period of time, but without the obligation of exercising the option (buying it), and without full control.
Owner/Seller Financing…
- Includes any seller who extends any amount of financing to a buyer.
- Owner/Sellers can offer full, or partial financing, on a given property.
- Buyers can combine partial Owner/Seller financing with partial bank financing in order to purchase property.
- Partial Owner/Seller financing usually involves a second mortgage.
Owner financing might include one or more of these methods…
Option 1. All Inclusive Trust Deeds [AITD] (Wrapping all the existing mortgages into one mortgage with one payment, and transferring title to the buyer).
Option 2. Land Contract [aka Contract for Deed, Agreement for Deed] (Wrapping all the existing mortgages, if any, into one mortgage, with one payment, but NOT transferring the deed to the buyer until he pays off the loan(s)).
Option 3. Installment Loan / Contract (Generic term for any note paid in installments over time).
Option 4. Lease/Option that morphs (converts) into either Option 1, 2, or 3 after buyer makes a certain number of ‘on-time’ payments.
Option 5. Whatever combination you can think of.
Hope that helps.
Thanks a lot for the reply, this helped quite a bit.
I’m just wondering Javipa how it is you run and manage your business and how you started in the beginning? Also what other things would you do differently if you had the chance while starting out. Do you have any advice for someone starting out just now?
Those are great questions…
It’s too much to write here how I run and and manage my business today. However, back in the day, I never knew what was actually possible, despite having purchased thousands of dollars in creative real estate courses, manuals, dvd’s, tapes, and books.
Here’s what I would actually do, if I had to do it all over…
- Ask myself what I wanted to accomplish and believe I could do it.
- Set a deadline to achieve it.
- Have no, “Plan B.”
There is one last thing… and this is a gross paraphrase from Zig Ziglar:
"Get your end game settled spiritually. There's lot's of rich, dead ...and surprised people ...in Hell."
I like the advice you’ve given me. My timeline though is slightly up in the air. I’m a UK citizen in America hoping to get my visa extended so a deadline for me isn’t great cause I could be told to go home at any time.
I have a somewhat unrelated question. I’m waiting on a reply from my mentor but I’m looking for some information.
Say someone phones me and asks if I can help them with a short sale. I’m just wondering whether or not helping this person is possible as I’m not sure how short sales work. The information the potential client gave me is as follows:
Property appraised at $150,940
Bank of America has the primary note, carrying 80%. The other 20% is being carried by BSI Financial.
Estimated balance on the Bank of America note = $189,513.85
Interest rate on loan = 7.995%
Estimated balance on the BSI Financial note = $31,433.87
Interest rate on loan = 9.88%
What could be done with this information in terms of a short sale or other investment opportunity that would result in a profit for me and a way to help the client without him getting foreclosed on etc. Any help or advise is appreciated.
ATM,
Honestly, I think you should focus on what’s on your plate at this moment, and forget exploring the what if’s of ‘short sales’ or whatever. I’m not wanting to be rude or insensitive here, but you’ve got zero time, according to what you’ve said about your visa, to mess around exploring alternatives in short sales. You’re all over the map otherwise.
You appear to be suffering from ‘shiny object syndrome’ which includes flitting from one shiny object to the next; doing everything, but focusing on anything.
Forget short sales. You’re already geared up for sub2 and lease/option training. Stick with that. There’s a mid-six figure income, after taxes, in the niche you’re learning about right now, regardless of where you live (except maybe Rwanda or Ethiopia probably). And it’s way less complicated and time consuming than any short sale transaction. How do I know this, you ax…
I took a professional, short sale training back in 2007 offered by the Inland Empire Investor’s Forum (one of the biggest real estate investor’s clubs in California). The guy teaching lives close to me, and at the time was doing 7-10 successful short sales a month. You can just imagine the numbers of failed short sales… After learning how much camping on a bunch of moving parts was required …on deals that would never materialize, I thought better. No thanks. That’s not for me.
Meantime, you’re already studying an abject gold mine that you could be doing all over the world without depending on foreclosure activity as the starting point. The power of Sub2 financing is so massive, that it makes little sense to wade through a bunch of bank hurdles, hiccups and the what-not involved with short sales… Ick.
Meantime again, trying to learn/juggle sub2, lease/options, short sales, and/or wholesaling is the ‘unicorn chasing’ of pipe dreamers. I’m all for exploring alternatives, but in your case, you’re still in the land of natural opportunity, and it’s time to grab this bull by the horns and wrestle it to the ground.
I would first like to honor you javipa
for giving out the wealth of information on here…
Where would you recommend getting training on the sub2 and LO deals?
I have been trying to specialize in that area without finding any solid info that walks you through the step by step process of doing these deals?
Also how are you finding these deals? Aka what is your marketing campaign?
Thank you so much!
I can’t speak for Sub 2 deals, but for lease options I would recommend Michael Carbonare over at The Naked Investor. He taught me the biz a few years back and it has been a profitable ride since. I’ve heard good things about Tod Toback, but I don’t know him from personal experience.
Man, the positive feedback is killing me!!! :biggrin
Well, you’ve asked several questions here and I’ll answer as briefly as I can.
L/O training: Todd Toback for the most profitable, ‘creative uses’ of lease/options I’ve personally ever seen.
Sub2: Well, me!!! John $Cash$ Locke used to offer a professional Sub2 training and he happens to be the guy that really turned me on to using a scripted presentation to get a ‘yes’ from a seller. I have no idea if John still sells his system, but you can ask him, and you will not be disappointed in his material.
Either of these choices will give you the total nuts and bolts, contracts, negotiating tactics, setting up your marketing, and how to close on your first deal (Todd is especially helpful in advising on systems development)
Campaigns are for wars. We don’t do campaigns. Campaigns are ‘done’ when the enemy has been conquered. Our marketing is more like flying coach on Southwest, wedged between two fat people; where the flight never seems to end. Does that make marketing sound unpleasant…? LOL
That said, our marketing is about consistent, repetitive, direct mailings to our highly sifted and targeted niche of prospects. Plus it’s continual exposure on CL, the paper, Pennysavers, Thriftynickels, for both buyers and sellers. Frankly, the sellers we get anywhere besides our direct mail, can be real time wasters.
Now, that said, I hate dealing with prospects who believe they’ve got options other than to deal with me. So, I deliberately scare off as many time wasters as possible. I’m not sharing exactly how I do this, because that’s how I feed my family. However, I will say, that it’s stupid to put out a net with closely knitted holes that deliberately catches more trash than fish. It’s psychologically, if not emotionally, draining to work with people who either need warming up, or maintain resistance to my offer/negotiations.
I will give you an example of the sifting I’m talking about…
“Another Failed Escrow? Call Jay Today For A Sure Sale”
What have I said here? First, I’m appealing to those who can’t sell their house and have TRIED. I’m not appealing to the sellers that were just testing the waters. I’m also not appealing to FSBO’s who think they’re better than agents at selling…therefore feel they can maintain the options of doing their own marketing …where hope springs eternal.
What else have I said here? I’m ready to buy their house ‘for sure,’ not ‘for maybe’. I’m resonating with the seller’s grief and frustration over their failure to sell. We’re talking ‘failed escrows’ not failure to find a buyer. These are two different issues. Failing to find a buyer just means that all options haven’t been explored…lowering the price, changing agents, fixing the roof, etc. to lure a buyer.
So, sifting for failed escrows means we’ve got a serious, motivated buyer on the hook, who’s now ready to shoot someone if their house isn’t unloaded ‘for sure’ in the next ‘x’ days/weeks REGARDLESS OF PRICE (screaming included for free).
Meantime, your marketing ‘campaign’ only ends when you’re done dealing.
There’s so much more to say, but… check out those training sources I gave and see which one offers you what you’re looking for.
:beer