Can't find these answers to "SubTo" deals

General Real Estate Investing
1

Hello,

Im looking to start making Subject To offers but want to know how I go about doing it…

I contact a seller and they allow me to buy their 100,000 property for 70,000. I will be assuming their mortgage and taking over their payments for “X” amt. of months or until the entire payment is made in full. Sounds great…here are some of my many questions…

  1. How long should I take over their payemnts for? Obv. each person is different but what is a normal time frame?

  2. Do the payments I make per month apply towards my final purchase price? Such as payments 1,000 per month, I pay for 3 months and then sell it, do I then cut them the check for 70,000 or 67,000?

  3. What happens if the time frame runs out and you didn’t sell it? Do you purchase the home or do you just lose all you put into it and what you paid per month? It may be obv. but I just wanna make sure.

  4. Im also confused about the contract part of it. How do I find out how much they owe on taxes, judgements, liens, mortgages, etc so I don’t get screwed out of a deal. The owner says the owe 3,000 to the bank. I sign a contract w/ them and pay off the bank. Then come to find out they really owe 23,000!! How can I avoid that?

Thanks

2

1) How long should I take over their payemnts for? Obv. each person is different but what is a normal time frame?

It depends on your exit strategy. Are you going to rent it out, L/O it, sell it, other?

2) Do the payments I make per month apply towards my final purchase price? Such as payments 1,000 per month, I pay for 3 months and then sell it, do I then cut them the check for 70,000 or 67,000?

Not sure what you’re asking here. You make the payments based on the payment amount. You pay the owner depending on how you buy (i.e., no consideration, some consideration, equity split, etc.).

3) What happens if the time frame runs out and you didn’t sell it? Do you purchase the home or do you just lose all you put into it and what you paid per month? It may be obv. but I just wanna make sure.

All part of your due diligence. You should make a profit when you buy, therefore, you have to consider market conditions, buy price, carrying costs, and so on. For example, you can calculate your profit by reducing the price by 5% for a quicker sell.

4) Im also confused about the contract part of it. How do I find out how much they owe on taxes, judgements, liens, mortgages, etc so I don’t get screwed out of a deal. The owner says the owe 3,000 to the bank. I sign a contract w/ them and pay off the bank. Then come to find out they really owe 23,000!! How can I avoid that?

Put clauses in your contract that protect you from “gotchas”. The rest you find out during your due diligence by taking your docs toa title company and have them do a title search, and by getting an Auth to Rel Info signed by the seller which allows you to speak with their lender, etc.

3

NMD,

Thanks for the fast and extremly helpful respones!

""1) How long should I take over their payemnts for? Obv. each person is different but what is a normal time frame?

It depends on your exit strategy. Are you going to rent it out, L/O it, sell it, other?

My intentions would be to either sell it or do a lease option. I catch what your saying though. If I were to sell it what would you recommend? Obv. it differs if the project was large or not. Lets just say it was some minor cosmetic repairs.<

  1. Do the payments I make per month apply towards my final purchase price? Such as payments 1,000 per month, I pay for 3 months and then sell it, do I then cut them the check for 70,000 or 67,000?

Not sure what you’re asking here. You make the payments based on the payment amount. You pay the owner depending on how you buy (i.e., no consideration, some consideration, equity split, etc.).“”

Im lost as well. What is an equity split?

Say their loan is 1000 a month. I pay that for 3 months, then boom sell the house for 100,000. That = 3,000. When I go to pay them the amt. we agreed on, 70,000, do I deduct the amt. I paid off. See what Im saying sir?

Thanks A LOT!

4

From your posts, I’m thinking you may be a bit confused on the Sub2 process as a whole.

If I were to sell it what would you recommend? Obv. it differs if the project was large or not. Lets just say it was some minor cosmetic repairs.

Even then there may be too many variables to consider.

Examples:

How far are they behind on their payments?
What are their payments?
Do they want any consideration?
How much equity is in the property?
How much are the repairs?
What was the original loan amount and terms?
How much will the place be worth after cleaned and fixed?
How much will it cost to close when buying and selling?
What are the market conditions in the area?
How long are you anticipating to hold the property before finding a buyer?
Will you be using a RE agent to sell or sell it yourself?
Etc…

What is an equity split?

Basically, it’s where you and the (soon-to-be-previous) owner agree that when you sell the property in the future, he will get a share of the proceeds from the equity (and/or rise in appreciation).

Say their loan is 1000 a month. I pay that for 3 months, then boom sell the house for 100,000. That = 3,000. When I go to pay them the amt. we agreed on, 70,000, do I deduct the amt. I paid off. See what Im saying sir?

This is where I’m getting a little confused. If you agreed to buy the house for $70k, that’s what you pay the owner (unless you made special concenssions otherwise). In the general Sub2 case, you would negotiate a price (sometimes it’s only what they owe + a little consideration), sign a contract, and take over their payments. Any holding costs comes out of your pocket, which is why you need to be realistic in your due diligence.

5

NMD…you’ve been a huge help bro and I appreciate you sharing your knowledge!!!

     Yes your right I am a little confused on the Sub2 thing....is there any reading or course you would recommend, since you seem very knowledgable on the matter?

Thanks again,
Jeremy

6

Yes your right I am a little confused on the Sub2 thing…is there any reading or course you would recommend, since you seem very knowledgable on the matter?

Not sure of any books, but John $Cash% Locke and William Tingle both have excellent Sub2 courses. William’s is a little cheaper (<$300), and goes over just about everything you need. Note that there are usually two different camps when it comes to Sub2 (or any other RE investment, for that matter): those who use trusts and those who don’t. I believe John doesn’t use trusts, while William does. Also, I believe John doesn’t use L/O’s, while William does. You just have to go with what is right for you.

7

WHen you say “trusts” you mean Land Trust correct?

 Is this when you put a property in a name besides your own to protect yourself from being sued???

  Could you tell me the what the pros/cons are to using this?

THanks NMD!
J

8

WHen you say “trusts” you mean Land Trust correct?

Yes.

Is this when you put a property in a name besides your own to protect yourself from being sued???

Maybe.

Could you tell me the what the pros/cons are to using this?

I don’t know all the legal issues regarding trusts, so I can’t really comment fully. Also, even with a land trust there are different ways to skin a cat.