I know this is a very vague question, and I know it will vary alot from market to market, but approximately how much should I expect to pay to close a Sub2 deal? Are we talking $50, $500, $2,000? If it matters, I’m in Texas.
Thanks,
Mike.
Hi,
Generally across the country closing costs average 2.5% for seller and 2% for buyer.
The difference between the two is the sellers cost of title insurance provided to buyer.
GR
It depends on what you give the seller for his equity (or to move out).
It also depends on whether you use a title company/attorney to close on the transaction, or not.
I’ve closed on $750K houses for the cost of recording the deed ($120), and ‘moving money’ I gave the seller ($20) for his equity, for a grand total of $140 in closing costs.
Because I check the title myself and record my own deeds, I save on title insurance. Yes, that’s “save.”
After the title company carves out the existing lien from coverage, they’re not insuring much, but they’re charging me like I was getting a new loan.
Most title companies will not close for you, unless you also buy title insurance from them. In my case, title insurance, and other conventional closing costs can run over $over $6500 on a $750k transaction, despite carving out a $675k loan balance.
So, I bypass all that, just by checking my own title chain for marketability, and recording my own deeds, etc.
Meantime, to answer your question, there’s no hard and fast rule for what it will cost to close on a sub2 transaction, except that the minimum costs are dictated by the recording fees.
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Think about this:
You have a seller who’s out of gas financially; is exhausted with selling his house; he can’t make another mortgage payment; and he can’t afford to move.
That there’s your classic motivated seller right there.
Well, offering him twenty bucks for his equity isn’t gonna fly.
If he has to walk with nothing, and he can’t even afford to pony up the first and last month’s rent, and a deposit to move, he’ll just sit there and bake like a cake, until his credit is toast. He just will.
So, what’s the answer?
Well, say the rent on a new house, he can afford, is $1200/mo.
He’ll need the first and last month’s rent, plus a deposit to move. That’s $2,400 in rents, plus another $1,200 in deposits, for a total cost of $3,600. He’s likely to need another $400 in misc. moving expenses.
So, you offer the seller $4,000 to move out.
It costs you $120 to record your deed. So, your total costs to buy sub2 is $4,200.
Not every seller is flat broke. Like my $750K deal, the seller had two mortgages, and just wanted debt relief. He was willing to give up $75,000 in equity to make that happen.
So I made sure it happened for him.
I captured $75K with 140 dollars.
Never mind that I turned around and resold this house on a contract, and pocketed a $30,000 down payment in less than two weeks.
I’ve got a student that gave the sub2 seller nothing for his equity, on a $500K house, he bought for $441K. He spent $9K to bring the seller’s loan current.
Meantime he immediately resold the house on a contract for $550K and captured a $45K down payment.
He netted $36K after reimbursing himself for the $9k he paid to bring the loan current. Not to shabby for a ‘no down’ deal…
WOW!..I knew CA was expensive since Prop 8 but did not realize it now cost $120.00 to record a deed.
I pay $12.00 and like you do all my title, etc myself.
It’s not just recording the deed… It’s notarizing the various documents necessary to administrate and control the loan, and paying for each seller’s notarization.
Buying from two-party sellers, in my case, costs $120. It’s less, if I’m buying from a single person. It’s more if I’m buying from more than one seller, and titling in a trust. Just saying.
My preference is to create a trust for the property ownership, transfer the property into the trust and record the transfer in the property records, then make your contract based upon the trust. If you learn how to create and operate trusts, then your costs are reduced to a recording fee in the property records for the deed.
Hope this helps.
Rob in Atlanta
Rob in Atlanta, I’ve heard of this method before, but I assumed creating a Trust would require an attorney. Am I wrong?