Question(s) about Sub2

:anon I’m sure this/these question(s) are elementary question(s), but i just want to have a firm picture in my mind of how sub2 works.

-Between the time the seller has decided to proceed with the transaction and the time a buyer is found, who makes the payment on the house.
-What goes into determining a deal is profitable?
-Who insures it and how does this happen without “due on sale” problems?


I’ve done hundreds of ‘sandwich lease purchase’ deals over the years and what I typically do is contract with my payments to begin the month after contract which gives me time to market the property. Yes, it takes courage to agree to make another house payment yet the rewards are high for that risk.

After contracting, I advertise using the terms ‘owner finance, no credit required.’ A lease purchase is, in fact, a form of owner financing and this type of ad will attract an end user who will make the payments.

This decision is what separates those who succeed and those who want to succeed and who stay in conversation rather than action!!

Determining if a deal is profitable is pretty easy…if you know how to market a property and financing as a package, there will always be someone to pay your price.

Put the property into a trust and there will be no red flags for the due on sale clause. As trustee, you will control property and the property will be the only asset titled inside the trust. Once you take control, you need to make sure the insurance is handled by you to protect your interests.

Hope this helps.


Rob’s way of doing it is very interesting by offering to pick up payments after a month. I like that way of doing it, as more sellers would agree to it. For what it’s worth, I’ve done it differently. I basically negotiate when my payments start in front of the seller. I aim for 3 months after signing initially, but will go down if the neighborhood is desirable enough. To answer the question of ‘who makes the payment before you start’, the answer is the seller. If it’s too much of a hardship for them, I will discover further during the time I begin negotiating with them. It might be that a different deal is more appropriate then. As far as what goes into determining if a deal is profitable, you base it on the equity a home has. That is, what does the home owner have owing on the mortgage vs what the market value of the sold comps are in that neighborhood. Also consider if the home needs repairs and minus out the cost. So you use the same sort of metrics as you would in any other type of deal. The question of insurance is a good one, and one that is sometimes argued over on this site from time to time. Here’s how I’d answer that question. If you have your contracts writting up correctly, worded to protect you, due on sale being triggered potentially isn’t really a huge consideration because lenders don’t want houses, they want their money on time as scheduled. So therefore in my opinion, the important thing about insurance no matter how you do it up is just to make sure the house is insured. That’s it! I’ve run into a lot of houses over the years where the homeowner got into trouble financially, and got their insurance cancelled. No insurance on a home is a HUGE mistake. Not to mention, it’s in violation of most modern mortgages today. That is, if you have a mortgage with whomever, you must have insurance on it too. Now, when there is a change to the insurance, the brokerage that sets up that change must notify the lender. So the lender will know. Will they trigger the DOS clause? Who knows, but they do have that option. I’ve done a lot of Sub2 deals over the years, been in this situation, paid the bills on houses on time as scheduled, and never had the DOS clause triggered. So it’s something to be aware of, yes, but if you do what you’re suppose to in a Sub2 not likely to get it called. I will say though, I try hard countering that potential by working hard to fit a fast exit strategy to it. For example, if I decide to exit with a Lease Purchase to a tenant/buyer, that TB I make sure is well qualified and not someone with only a couple thousand down payment and rotten credit that will take years to qualify on. Lots of time there I put into getting a really good candidate who will qualify in months not years. And that is the reason WHY I personally start out with the seller saying ‘I’ll offer to take over in 3 months down the road’, it’s to better cover my bases. But even that is a personal preference thing, and what the investor tolerance is. Anyway with respect to insurance, don’t matter if you go on as ‘additional insured’ or get your own separate insurance, just make sure it’s insured for a MINIMUM of the full replacement value of the home.

The more things you’re willing to do for the Seller the more deals you’ll get.

Taking over the payment “now” is a great sales tool benefit. However, I would be reluctant (as in never) to offer that unless at least these four things were true:

  1. I captured at least 10% (real) equity at the time of purchase (not including any money I gave to the Seller to get out)…
  2. The Seller was giving me his deed…
  3. The Seller’s loan terms were marketable; not some funky “a.r.m.” deal with a terrible interest rate, or short-term fuse…
  4. The house needed little, if anything, done to it…

If any of these things were not true, I would pass on the deal (or at least not offer to take over payments until I found a buyer).

In the latter case, if I still did the deal, I would “videotape the Seller handwriting an affidavit acknowledging that he understood what he was doing.” LOL :shocked No, I would not.

Meantime, you also want to deal in newer homes that are attractive and easy to sell. Not some thirty-year-old, dry-rotted, country-cutesy “Georgetown” style house with smoke-blue paint and white trim. Ick. Or something with a driveway that looked like an oil-stained relief map of the Grand Canyon.

The problem is you can find those all over the place. :banghead

I’m looking at moving from wholesaling to sub2. What information do I need to get from the owner on the phone (prescreening) and what do I need to get from them when we meet to verify information? What type of forms/contracts do I need them to sign (for Texas)?


Sellers are getting more educated on selling to someone on a promise that they can find a buyer to buy their home.

I’m not sure what you’re talking about. The Sellers I deal with expect me to find a buyer and are counting on it.

If you’re saying that more Sellers don’t believe I’ll find a buyer for their house, that would be another situation.

Either way, I’m showing sellers what I’ve done, which removes any doubt about what I can do. For example, after showing the Seller a bunch of houses I’ve bought and sold, along with a reel of testimonials, Sellers don’t remain suspicious about what I can do for them, regardless of the “education.”

At the same time, I don’t make promises I don’t plan to keep. And quite frankly I don’t have a reputation of promising Sellers the moon, and only delivering a dirt clod, like those guys in Texas were attempting to pull off two, or three months ago.

Moreover, I don’t buy houses that are hard to resell, or have a limited appeal the same way I do with ones that are easy to resell…and need nothing. For example, if the house is beat to crap, I have another “program” for that. However, any successful transaction revolves around a Seller who believes that what I offer is better than anything else he’s considered. If the Seller is so “educated” that he knows better than me about what will happen with this house, I don’t argue. I walk.

That said, I’ve learned to filter out the Sellers who either have options; or only curious; or just suspicious of what I do. Again, if a Seller is concerned that I won’t find a buyer, I skip passed that Seller.

Meantime, I’m not finding ‘more’ educated Sellers that don’t trust my house flipping strategy.

If your experience is different, then I would only suggest that you sift more narrowly for Sellers that have fewer options, are less “educated” and focus your pitch on those. Otherwise, the option-weighing Sellers will come up with all sorts of reasons not to do business with you.

BTW, I don’t make “promises” to Sellers. If any Seller is either nervous that I’m going to resell his house, or that I won’t resell, then I’m in front of the wrong Seller, or I’ve messed up my offer.

Interesting comment. :beer

Focus on making an appointment with the title holders to make an offer. Don’t explain how you buy houses. Get the seller’s name, and the address of the house. If you can’t get these things, hang up.

Ask the seller to describe his house and then ask questions based on what he says and lead him to answer at least the following in an elegant, effortless fashion…

  1. How long he’s owned the house…
  2. How much he owes…
  3. Why he’s selling…
  4. Is the house listed, or not…
  5. Why didn’t/hasn’t his house sold…
  6. Motivation level…
  7. Condition of the house…

You need access to a property database, so that you can run comps, confirm ownership, establish actual equity based on what’s owed and what the house is worth, etc.

Once you’ve established that there is equity in the house, you keep the appointment with all the owners.

You can ask these questions a little more elegantly than “What do you owe?” for example. I’ll try to go in the back door to get my answers, without sounding like I’m on a fishing expedition. That takes some practice.

That said, sometimes it’s just wiser to come out with simple questions like…

  1. “How much are you asking?”
  2. “How much do you owe?”
  3. “How much are your payments?”

Even the more motivated Sellers may feel violated by these questions, but they’ll answer them if they think you’ll solve their problems …OR they don’t have anything to lose by answering your questions.

Meanwhile again, I would focus overall on establishing a time to meet (all) the title holders in person in order to make a pitch. If you can’t set the appointment, you’ve eliminated 70% of the loser prospects over the phone. Once you’ve set the appointment, you do your due diligence; to see if there’s anything worth buying.

Then once you’ve determined this is a potentially profitable deal, you go to the appointment and make your pitch. I use what has been called a “yellow pad analysis” which you can search for on my blog page, which will give you a good idea of how to get the price you want. fwiw

You need at least a POA; Deed; and Quit Claim to buy, but if you resell the terms, it’s another ball of wax. has some Texas-specific forms and contracts that I recommend. The most elegant way is to use a real estate attorney to handle your documentation. It’s not that expensive and the attorney will have to defend his work in the event of a mistake.

I highly recommend using an attorney to both buy and sell. It sobers everyone up…! Sure it’ll cost you several hundred each transaction, but if there’s not enough money in the deal to pay for that, you’re in the wrong deal.

And so once you get the property you do a sub2/OF or LO sandwhich? I know due on sale doesn’t normally happen, but what happens to your buyers if it does? And instead of sub2, why not do OF? And how is the sandwich done without fee simple title? In Texas?

:shocked OMG, thank you all for replying!!

Rob what part of Atlanta are you in?