My Latest Sub 2 deal. Any feedback?

This is a sub 2 deal.

Need some advice on how to handle the 2nd mortgage. The seller has agreed to continue paying the 2nd note himself. What can I do to ensure he makes the payments and how can I work this in case I sell the house in the near future. This deal only makes since without the 2nd. He is not behind on payments.

Arv: $164,900 (3 others on the market for $174,900, basically same house)
Repairs: $4,000 (paint, carpet,and general cleanup)
1st Mortgage: Payment: $994.06 PITI Balance: $127,000 (6.625%, 30 yr fixed)
2nd Mortgage: Payment: $178 Balance: $21,000 (15 year interest only)

My exit strategy is to sell the home with owner financing or a cash out purchase.

The property is currently rented for $1,000. 3 other houses in the subdivision are renting for $1,100. This would be my back up plan.

Any advice or feedback would be appreciated!

The exit strategies seem ok depending on what your closing/sales cost and how much of them you can get from your buyer. Also if you are going to handle the repairs yourself it might make it to skinny IMO.

But, I wouldn’t touch it as a rental unless you can bump the rent. Even at $1100.00 you aren’t covering your debt service. Personally, I won’t hold a property if I can’t get a minimum of $250.00 per month after expenses and reserves.

Good luck


Thanks Chris.

I’m not going to do the deal if I can’t do something with the 2nd. He is willing to continue paying the 2nd, but if I sell the house soon the balance will come due. He doesn’t have the $21,000.

I’m trying to come up with a way to have the 2nd removed. He is checking with the bank to get an unsecured loan for the balance.

Any feedback on how to remove the 2nd would be great.

I’d try to short it or require him to pay the debt service on the second. If you do the latter make sure to get some collateral besides the house.

Hope that helps.



Have you looked into having him escrow something–anything–to cover, say, a few payments on the second ahead? Or, if you’re not giving him any cash, do a CYA saying if he slips up on the second, the deal is off. What’s his motivation here? If he’s not behind, just wants out, and cares about his credit, he just may actually do what he says. But have a back up plan in case he doesn’t. Maybe a few K on the back end when you sell the house. I alwas like to promise some back end to a seller, makes them more compliant and easier to work with.

This is a really good question, about the 2nd mortgage.

The 2nd mortgage would come due to the seller if anyone. Once you buy the home it’s yours, and it will be through your mortgage company.

The seller would still be responsible for the 2nd mortgage, right?

I’m trying to make some sense out of this, as I never even thought about that. …


If you are concerned about him paying the second, you should set up escrow and have escrow pay the amount. Also, if he is still on the mortgage, hence a ‘sub to’ deal, why would he stop paying and ruin his own credit?

A lot of banks are letting you buy out the second for a very low % of the balance. We do it on a fairly regular basis.

I’d begin the investigation there if I were you.

Thank everyone for the feedback. This actually turned into a good deal (so far).

The seller paid off the 2nd with another loan. This way I have the property for the 1st mortgage at $127,500. It should sell for around $160,000

I finished cleaning up the property last week and have two other appointments in the same subdivision today.

Thanks again for the feedback.