Let’s say you buy a house Sub.2 and then want to sell it, offering owner financing.
How do you do it in Texas, with the K for deed restrictions?
Also-- what’s the general way these investors work this type of strategy?
Adam,
Thanks to that one greedy investor in Ft. Worth, the rules have changed for the rest of us. It only takes one bad apple to spoil the bunch.
You’ve basically got two choices now in Texas. You can sell on a lease option or you can sell it out right with a note and deed of trust…where you are the lien holder.
Most of the bigger players I know in this arena are choosing to go the lease option route.
The second option means you’ll have to go through formal foreclosure proceedings. Thanks to the rapid fire foreclosure process in Texas you can have them out in 60 days…assuming they don’t file bankruptcy…that adds a whole new level of risk.
Hi -
I guess that Ft Worth guy got all the local press, but changes were in the “wind” for quite a while before they were actually written into law. The only reason I bring it up is to point out that it’s our job as investors to make sure we keep our heads up and our “eyes on the road”. There’s not much excuse for getting caught unaware. And as an investor, you won’t get much sympathy either.
Anyway, there are some differences between the two “other” financing alternatives that you might want to consider.
First, L/O’s have customarily been used as a management tool rather than a means to actually “sell” the property. Personally, I’ve never had one go to term. Now, that doesn’t mean much – I would still try it again under the right circumstances. And I think that L/O’s might be a good fit for someone with multiple properties to use as an ongoing business strategy – in other words, employ the law of large numbers. “Do the math” for yourself and you may find that the level of risk (under these circumstances) is acceptable and can be managed.
On the other hand, there are a couple of advantages to using traditional paperwork (DOTS, etc). Remember that properly prepared paperwork brings with it a legitimacy (sp?) that less tradtional forms do not. It’s been around for years and most financial people understand it and feel comfortable with it.
This is not a minor point. You won’t have to explain to attorneys (those you’re using now and those you “run across” in the future) or judges what it is you’re doing. Accountants (or bookkeepers) won’t have any problem assessing specific values to these transactions. Title companys will be able to quickly and easily process your transactions. Banks (and bankers) will breathe a sigh of relief when they see you’re using a business model well known to them.
What does this mean?
Well, for a start it means that because all these people (and the professions they represent) VALUE these “pieces of paper”, you can use that belief to extract cash, credit, terms, and other considerations from them.
Think about it. By using their paperwork, their terminology, their transactional processes, you build value into the transaction.
For many years, my favorite form of “cash” was a traditional mortgage complete with Fannie Mae paperwork, 1003 credit apps, etc.
Imagine being able to walk into any bank and easily explain your credit needs and offer as collateral a product they fully understand and which they find HIGHLY desirable (and liquid).
Yeah. Imagine that.
Take care,
Eric C
Can you shed some light on this Ft. Worth guy? Exactly what did he do? And what changes did his actions bring about? I’m ready to start my Sub 2 investing and want to know everything. Stacy, you mentioned that most sub2 investors chose L/O vs. sale, can you explain more?
The way I plan to do sub 2 is after I aquire a property I will sell (owner financing) with a 24-36 mo balloon and then the buyer refi’s for the agreed upon price.
As far as the paperwork is concerned if any of you experienced Texas Sub 2 investors wouldn’t mind listing the necessary forms that a Title company would want I’ll take care of securing the forms. I just want to make sure I have what I need when I go do my first sub to deal.
All of us newbies thank you tremendously.
DeeDee
If you’re not selling K for deed, and you’re not selling it on lease option… then how do you do it? If you’ve bought it Sub. 2, and you give them the deed, then you’re risking getting the note called, right?
getting the note from the start…
Selling on a Note and Deed of Trust… is simply creating a second…
wrapped around the first…
Lenders typically only care that they are getting paid…
Listen to what Eric is saying… He knows from what he is talking about…
We bought a commercial building awhile back and converted the contract for deed to a note and DOT so that we could put that up as collateral…
It was like having an extra 80k in our pocket…
David Alexander
Hi everyone,
Tell me, please, whether I understand your responses.
Are you saying that instead of “holding” the deed as in CFD, you simply owner finance using standard forms? i.e. you just make a regular sale and you hold the note?
Then do you use a warranty deed with vendor’s lien?
Thanks,
Randi