Hi everybody,
I have great interest in all of this investing stuff, but i still dont really understand what Subject 2 is. Could someone please explain this to me in english!
Thanx
To give you the simplest meaning it means. Taking over a current mortgage loan.
beaver124,
Glad to meet you.
This link will help you understand.
http://www.reiclub.com/articles/sub2-beginner-investing
John $Cash$ Locke
Hi Thanx everyone, that really helps, but i would just like to know why you would take over a mortgage, and how you could make a profit from it.
P.S. Thank you Mr. Locke, its great hearing from a legend.
Subject 2 is attractive to those investors who cannot qualify for a loan themselves or don’t want that on their credit. It also alleviates seasoning issues.
beaver124,
Thank you for your kind words.
The first thing you do when purchasing Subject To is take off your conventional hat and put on your creative hat so that you can understand what motivates a seller to sell under the terms of , just wants out, divorce, purchased another property, or a myriad of other reasons.
Wheteher you can qualify for a loan or how your credit is has no bearing on Subject To investing, the reason being why would you use your own credit when you can purchase hundred’s of thousands of dollars in properties for pocket change.
We work with 3 profit centers in doing a Subject To deal and as an example let’s look at a $200,000 property, that we gave the seller $1k for as a purchase price.:
!. The down payment from the seller on a $200K property would be on the average $12K down, so we would have a profit up front.
-
The current interest rate on the sellers loan is 6% when we sell we add 2 points which gives us a $400 per month passive income.
-
We sell with a 2 year balloon note to our seller, if they make the payments on time, which can be verified by the Loan Servicing Company to a lender, then the possibilities are excellent our seller can refinance. We take the appreciation yearly which let’s say is only 5% which we add to he selling price, so this gives us close to $20K when our seller refinances at the end of two years.
Who are the buyers that will do this they are the 40%-60% who are turned down by lenders, or for other reasons (divorce, medical bills, etc., it does not mean they are bad people, it means that somewhere they had a problem and we can solve their problem.
Set with your creative hat on for awhile and you will understand when the options for a seller or buyer comply with our methods of investing.
So lets look at an average deal.
Sellers balance on their loan when we purchased $192, FMV $200K.
Our investment including down, taxes etc. $4K. Except for the $1K you can take the rest out of the down payment. Taxes could vary depending on your location.
Sold house for $232K w/$12K down
Up front gross profit: $8K
Monthy passive income profit for 24 months $9,600
Sellers re-finance in 24 months, when all is said an done we will have grossed around $37K from the property. These are rough figures but pretty much hold true if you understand Subject To investing.
John $Cash$ Locke
Hi All, Ok I was reading that sub2 would be a good place to start if you have Bad Credit and no money of your own and New at REI.So my Question is how do you come up with C-Costs or taxes, Down payment Etc. Is sub to more for people in foreclosure. What is your opinion on my situation so that I can start in REI. And do you sell these Propertys so you are not making morgage payments on them. I also need a house for my family whats the best way of doing this. I can’t afford houses in my area and we don’t want to move due to kids in school. I live north of Denver Colorado. Thanks