Land Contract v. Subject To

General Real Estate Investing
1

I’d like to get some input from the experts out there that actually do either one of these practices. My mind was opened to taking properties subject to the existing financing and then turning around and selling them via lease option or land contract.

Well, we met with our new attorney today and he had a different approach. He suggested that we purchase properties on land contracts instead of subject to and then turn around and sell them on a land contract also. His big concern was the due on sale clause, even though he said in all of his 30 years of practicing he has only seen the clause called in 2-3 times.

I was attracted to subject to’s because of the obvious, no money out of pocket. What I have found is that when I talk to people about it I always get the same reaction… “Who the hell would do that??”. Obviously not them… :slight_smile:

So if you have an opinion here please share…

2

Jared,

My favorite line when someone called me from my marketing is “This isn’t one of those damn deals where the loan stays in my name is it?”

“Sir, we have several ways we buy properties, however I would need to see your property before a determination is made on the best way to help you.” I will come by at 1:00 PM this afternoon to make that determination (period)." (Slight Pause) “Your address is?”

Once I have the address in about 10 minutes I know more about his house than he does, balance of mortgage, interest rate, neighborhood demographics, etc.

Then my scripted presentation takes over when I am at his house and at the end I make a decision on whether I want to take over the property Sub 2 or not. The loan staying in his name never comes up again.

I purchase Sub 2 and sell on Contract for Deed (Land Contract), in my 500+ deals never a loan called, guess I just do it right.

Anyway this is how I do it.

John $Cash$ Locke

3

LMAO. I’ve heard that a few times. Thanks for your input John. It’s appreciate as always.

4

hey Cash, i see you mentions sale on contract for deed. are you nervous that you would have to foreclosure on the property if they don’t make the payments.

i was always told that it would be best to sell on a lease option so if worst comes to worst all you have to do is eviction the tenant.

i am assuming that for your new buyer you are getting at least 5% down and checking their credit.

5

CharlottePlayer,

Never had to do a Judicial Foreclosure, the same way I purchase Sub To is the same way I have a Buyer leave the property.

“U-Haul” money works every time. However, you cannot let them get into “self denial” which is what happens with most people who go into foreclosure. I am there on the 16th of the month that the payment is due. Not confrontational, just there to see how I can help. At this time you get a firm date the payment will be made or you find out that they are out of money.

If they are out of money, then you present the U-Haul way and say “let me help you get started again.” Instead of a “Promissory Note” I use a “Cognovit Note”. "A cognovit note is a confession of judgment given to a plaintiff, agreeing to pay a certain sum. The defendant acknowledges the claims asserted by a plaintiff against him in a complaint are valid and waives all defenses. It is usually given to avoid the expenses of protracted litigation. Laws relating to cognovit notes vary by jurisdiction, and are disallowed in some jurisdictions.

I will point this note out to them reminding them they signed it, if the Smart Mouth me then since everything they own is tied into the note, I ask them if their car runs good. :rolleyes This gets them off the dime quickly.

I like bread and butter houses, these houses are found in every market. I get a minimum of $6K down to $20K down and this is based on the house rather than a percentage.

Now read very closely…If they have the down payment I hold my thumb on the underside of their wrist, if I feel a Heart Beat their credit is good with me. Now I do put them with a Mortgage Broker immediately to work with them so they have a good chance of qualifying at the time their Contract for Deed states they must re-finance.

Just the way I do it…

John $Cash$ Locke

PS: One other thing I thought of, when the Buyer says to the Judge I have an option on the property, watch the Judge say to the Seller, you will need to do a Judicial Foreclosure as the Buyer has an equitable interest in the property. I have personally seen this happen a few times, so I know it happens. Maybe not all the time, but this is a chance you will be taking on a Lease/Option no matter how anyone tells you to word the documents.

6

it seems like the same thing will go for the contract for deed. now let me make sure we are on the same page here, with the lease option, you have the tenant sign two agreements, one the lease and two the option. the option agreement is fully contingent on them completing certain terms of the lease. Second the lease isn’t to mention the option making the lease and option two different agreements.

every contract has terms that need to be met which is consideration, so if the option references the lease and the tenant violates the lease, then a properly written option clauses will cause the agreement to be null and void.

is this the way you see it?

7

CharlottePlayer,

Absolutely the Contract for Deed falls under the Buyer having an Equitable Interest in the property, which requires a Judicial Foreclosure unless you know how to handle the situation should eviction be required. without having to go through a Judicial Foreclosure.

Since I do not sell on Lease/Option, you will need to consult with someone who has the answer on how they do it. However, if you think about it “the lease does not mention the option” all I am saying is be prepared to tell a Judge why the Lease does not mention the Option.

“Equity is a concept of rights distinct from legal rights. In equity, a judge determines what is fair and just and makes a decision as opposed to deciding what is legal.” Like I said tell it to the Judge, should a Buyer bring up the Option.

John $Cash$ Locke

8

i see.
http://www.freesmileys.org/smileys/dance004.gif

9

Jared,

Thank you, always my pleasure to help where I can.

John $Cash$ Locke

10

Sounds like your scripted presentation is tighter than a virgin’s daughter! :bigthumbup

My scripted presentation is very generic and usually ends up making the seller wary, ask a bunch of questions, or make them even more confused. What I normally say if I’m going for the deed (over the phone) if they have equity is “If I could make you a small down payment and pay the balance of your equity in monthly installments…” or if no equity “If I could make your payments and take this property off your hands with a quick purchase…” Like I said, my results haven’t been that great.

I’d be in heaven if you’d share a bit of your pitch. :biggrin

11

nsu1997,

Glad to meet you.

YOUR JOB ON THE PHONE IS TO SET THE APPOINTMENT:

The people that call you are already motivated.

Here is the opening of my scripted presentation and I start in the Living Room:

Mr. & Mrs. _____________ let me begin by telling you a little about the Cash Now Team. Present Credential Book (This is where I or my students show all of mine and their deals printed from County Recorder web sites, plus other information that gives us credibility in the eyes of the Seller.)

[b]We, as a team, have been buying and selling houses in various parts of the country for over 12 years. To date, we have purchased over two hundred million dollars in property. For those that qualify, we offer a unique opportunity.

The only way to tell if you and your house qualifies is to review specific information with you personally and evaluate your property. If at any time during our discussion, I feel that we cannot help you, I will let you know at that point rather than disappoint you later.

What I’m going to do here today is explain to you step by step how I arrive at the figure quoted to you for your equity and the benefits of a purchase by Cash Now. But before I continue, I want you to understand that I’m not going to paint you a rosy picture about buying or selling your house. There are good points and bad points. I intend to point out both sides.[/b]

Then I go into inspecting the house, plus other techniques, when they are silent praying I purchase their house, then comes the Take Away closing statement, the most powerful sales statement you can make. You can watch their body language at this point and tell if you want the deal… it is yours.

We answer all Questions before they become Objections when using a script. This is just a sample, but it works every time, your closing percentiles will go to 80%-100% if you use a correctly worded memorized scripted presentation.

John $Cash$ Locke

12

John, pleasure to meet you as well.

Wonderful info and it makes perfect sense why it works - you immediately get over a huge hurdle (credibility) and I can imagine it’s a cakewalk from there. Thank you very much for imparting some knowledge on us mere mortals. LOL

13

box2good,

Glad to meet you,

Thank you for you kind words.

Sometimes it is difficult to get across to some that basically we are salespeople, our closing percentiles are based on how well we are able to communicate with people we are trying to speak with, albeit buying or selling.

There are ways to receive the proper training so we can go out in our great creative real estate industry and become very successful. First we must learn to SELL!

I have recommended to students to take acting classes at a local community college, how many times have we watched movies and it is so believable we forget it is a movie…think about how that applies when you are speaking with a new client.

Sales touches everyones lives, without it we would still be in the dark ages. Every where we turn, we are introduced to new products & ideas to help better our lives. Effective sales presentations and salespeople help guide us to these services, products, etc.

John $Cash$ Locke

14

Some interesting stuff there, John. My closing ratios aren’t quite that good but once I get in front of a motivated seller I do get the deal more often than not (50-60% or better).

You say that sellers who call are already motivated. While I agree with that to a degree (they’re motivated enough to call and see what you have to offer) I’d like to know what percentage of those calls make it to an appointment.

The reason I ask is that I’ve seen your postcard (or at least one of them) and it’s pretty standard stuff to get them to call, no heavy-duty screening involved. I find that when I put that kind of marketing out there very few callers are truly motivated. Most are just calling to see if I’ll pay more in cash than they can get through a realtor. In fact the number of motivated sellers are essentially identical to the numbers I get by cold calling. The only advantage to having them call me is that it’s easier psychologically to return a call than it is to initial contact. With the cost of marketing these days that’s an advantage that’s hard to justify.

15

John…

Great thread! I’ve read many of your posts and articles you’ve written. I can already tell when i’m speaking to sellers that i’m more confident handling their questions/objections and sometimes even head them off before their even asked.

Once again, Thanks!

Darin

16

Doug,

First of all when I build my list to mail to house owners, it is built on the most likely to need my help. I do not mail to Notice of Defaults, Pre-Forclosures, etc., because I do not want to deal with them or making up back payments etc.

I do not buy lists, I use SiteXData, so that I can select the owners most likely to need what I have to offer. This way I am targeting my marketing to an audience from past experience that will pick up the phone and call. This may sound out in left field, but I can drive a street and tell you who is most likely to need what I have to offer.

I feel every Sub 2 deal is worth a minimum of $25K when all is said and done. Now how many deals does a person need to do a year to have a nice income? So if an investor does one deal every 3 months they are looking at $100K a year.

This is a copy of a basic post card, that a person could use and will get calls, if they use the correct list.

http://i158.photobucket.com/albums/t96/IrisPen/NewMILBack.jpg

Rather than tell someone you can make $11,000 a week with their method and other such nonsense, I feel if an investor applies themselves on concentrating on being the best they can be with the correct knowledge, Sub 2 investing can be very lucrative.

Your question about how many appointments are set. I set an appointment with everyone who calls, because my initial goal is to set the appointment, not ask questions that may turn off the caller. Why? because within 10 minutes after I hang up, with their address I know more about their property than they do. Such as mortgage balance, interest rate, etc.

Now if I find their property does not fall within the guidelines I am looking for, I call them back and explain that I will be unable to help them and give them advice on the best possible way to sell their property or other details that will be beneficial to them. This does not happen often because my list that I mail to is made from information that falls into guidelines of what makes a great Sub 2 deal.

John $Cash$ Locke

17

Darin,

Glad to meet you,

You are certainly welcome.

I can see you are leaning how to handle a very important part of creative investing, by handling objections before they are asked, very important when speaking with a potential seller.

The best to you,

John $Cash$ Locke

18

box2good,

First the lady will need to petition the court to become trustee for her husband. Then she can sign documents for him. She will need an attorney to prepare the correct documents showing why she should be appointed, in this case the husband is not mentally capable.

Otherwise you can cloud anything you want to, until your Lease/Option is all called null & void by the courts and a Title Company would just hand you the paperwork back when it came time to sell to the Buyer without proper documentation.

John $Cash$ Locke

19

Hey John, great stuff as always and thank you for sharing your script and information with us.

You said something about telling new investors to go to acting school… to me that sounds like a little much. I guess I don’t understand where the acting is. When I meet with motivated sellers I also have a little script (better now after reading yours!!), but all of it is true and all of it is real, no acting needed.

Anyway, my two cents… thanks again for all the information! :biggrin

20

Jared,

Some new investors hold back from really getting started, because they may be a little shy or they feel intimidated speaking in front of a seller.

Receiving training in acting on stage will bring them in front of many people and sharpen their speaking and presentation skills. Even though the presentation is scripted, it must be given smoothly and not sound canned, another reason for some to sharpen their skills when speaking.

When you are using a script are you not acting in front of a Buyer, of course you are, that is what a script is all about.

John $Cash$ Locke