This is my first attempt at Sub 2. I plan on calling an atty from a title co. to draw up some of the paperwork and do the title search. I need you guys to help me out so I don’t make any big blunders…
Here’s the deal. Old couple buys house for 90k in 06, both are now in nursing homes, kids are taking care of the home from long distance. Talked to the son who has power of atty. and he says he just wants to be done with it. The father put down 20k when he purchased, monthly payment is 655 with taxes and ins.
My intention is to offer 8500 and take over the loan sub/2. Rents in the neighborhood are $600-$800 avg. THis is a 3bd/1bth brick ranch, 1100 sq ft. Needs windows, garage doors so far, I will be going inside tomorrow. I estimated that total updates would be about 10k.
I plan on showing the couple that if they list with a realtor after they pay the commission, closing, holding costs that they will be at about the same net.
Home is worth $105k min.
Heres a recap of the numbers:
purchased 90k-20k down = 70k - payments = 68k owed
I offer 8500 down
put up 10k repairs/updates/title costs.
68k+18.5k= 86.5k total investment
105k - 86.5k= 19k equity
I plan on making it a rental or L/O. and then refi in the spring. How does this look so far?
JR is right the deal is to thin. No the property doesn’t have to be in arrears.
You shouldn’t do a Sub2 until you’ve had some training so read and search the info. here and take a good course. I’ve seen and have courses from $100-$700 bucks. PM for who.herbster
Why would you want to buy a house where you can get rents between $600-$800 and pay mortgage of $655? After you include taxes, insurance and all the other expenses, you would probably end up with a significant negative cash flow… Have you thought this through?
$655 includes tax and ins. I can rent for $750/mo. My main question is when is a sub 2 the investment vehicle to be used? I thought it was mainly when the HO is behind on payments and/or if the buyer does not want the loan in their name. THanks
I agree with most of the others that this deal isn’t worth doing. The minimum return on your investment should be at least 200%, with a minimum profit if you had to sell it of $25k.
You have to take into consideration not only the payments that are behind, but also your profit, the repairs, monthly payments, closing costs (about $1200) and any kind of concessions that you may have to give up to your eventual buyer.
All that said, I would pass on this property unless it was worth about $140k
Whose course did you purchase to learn subject to’s?
ill take a stab at it. i can offer them their full asking price via sub2. i agree with one of the poster about NOT putting down 8500. take over sub2 and do a lease to own to get more profits out of it. where is this located?
If you do this, the seller will be laughing all the way to the bank. Lets assume that you dont give the buyer any money
Home is worth $105k min.
take over payments at $68k
add repairs $10k
add closing cost and title work $1k
add 6 months holding vacant house $4k
add 6 months marketing expense 3k
total expense 86k
105k-86k = 19k in profit if you can resell it later at 105k and not have any selling expenses
10+1+4+3=18k
19k/18k = 106% return on investment, needs to be at least a 200% return or 36k
Never spend and tie up 18k just to make 19k
To take this a step further, what if you put it on the market for 105k
Most buyers will need some assistance for closing costs, average about 4% or $4,200
That $19k in profit now drops to $15k
Now what the buyer has a realtor as their agent, the realtor is going to want at least a 3% commission or $3,150
Now your profit is down to 11k
What if it that buyer falls through and can’t close and you have to put the house back on market and it takes 3 more months to find and close with another buyer? 655*3= 1,965
Now you have only got a 9k profit, and what if you need to lower your sales price to what the buyer can afford down to $100k? See where I’m going with this? believe me all these things happen.
You must have at least a 200% return on your investment or you’ll just be fixing the sellers mess with the hope of making money. If you really want the house, get the son to pay you at least 10k (yes, Pay you) to take it off of his hands.
I will 18.5k invested in the property thats with the 8500 down
and 10k repairs/updates/title costs. I then will take title to the home and make it a rental at $750/mo or $800 on a L/O. It will cash flow $100/mo. or $150/mo depending on which method I use.
If I rent it the numbers are what they are so my cash on cash return will be 1200/yr / 18.5k = 6.4% not real good but I would also be looking at the loan paydown in the process. This would be a long tern investment so 6.4% would not be too awful bad year after year until its paid off.
If I Lease option I would ask for $105k with 3% down and $800/mo. for 3 years. So I would get $3150 down and cash flow $150/mo. ($1800/yr)
This would get me at $18.5k - $3150 = $15350 invested
so…$1800/$15,350=11.7% cash on cash return for three years.
and then $105k-$3150-$68k=$33,850 gross
$33,850- $15,350= $18,500 + $5400 ($1800x3yrs)
for a total net of $23,900
and a return of 155% ($23,900/$15,350)
Anyway that was what I was looking at plus appreciation in my neighborhood is still apparent albeit slightly lower than recent years.
The theory is correct, you just need a better deal.
also factor in this
if the person you put in the house on a lease option doesn’t exercise the option (70% don’t), and does more damage to the house than the cash you’ll get on option, you’ll have to come out of pocket to get it back up to rentable or resale condition.
Also on a 100k house, it will be very difficult to get more than 2500 down plus the first months rent. I sell 150k houses and have a hard time getting 5k.
Just try to find a better deal, at least a 200% return on investment