sub 2 deal - cfd

General Real Estate Investing
1

[b][/b]Deed from a SUB-TO DEAL

The following is a hypothetical deal:

The seller has a home worth 150k and has a lien on it from a bank, with a balance of 133k. The interest rate and terms are good. PITI = 1,066.00 per month.

They are 1 month behind and want out. They have also asked for 1k in moving or “ u-haul” money.

Rents in the area are going for about $1,150 to $1,200 for rent for the same square footage home and same area.

I guess I want to ask for the best way to get this deal done. I have spoken to the seller twice and sense the motivation in his voice.

My idea was this:

Get the deed subject to existing financing. I have mentioned this to the seller and they said they would entertain this action.

I would then get the seller to put the home into a trust and transfer the ben.interest to my llc. Guidance in doing this would be appreciated!

After that I have several options. I should also state that the home is in a good area with no repairs needed.

I would have the 133k owed plus the 1k in moving money, 500.00 to set up the trust? And also, making up the back payment and then an additional payment until I sell. Total would be approx. $136,532. That leaves about $13,468 in equity and know for a fact the FMV is at least 150k. Have a friend that is an appraiser and also had a title company do a property profile on it for free!
Once this is done I can do 2 things:

l/o for 1,199.00 a month with a 12 month lease, and an option to renew for an additional 12 months. Price of 160,000 with 5,000 down.I would create about a $133.00 a month in positive cash flow and also get an upfront profit of $1,468.00.

5K – 3,532 = 1,468.00

Back end profit of $23,000- 155k thru refinancing – 132k owed = 23,000.

Total profit on deal is:

133x24 = 3,192.00 = monthy cash flow for 2 years
1,468.00 = upfront cash
23,000 on refinance by T/B/

  TOTAL = 27,660.00!

Not too bad, if it goes that way.

The other way to do it, that I am considering is to do a seller finance as follows:

Seller financing and doing a wrap around mortgage to the buyer. The price would be 160,000 with 20,000 down and a note for 140,000. 20 years @ 8% with a 3 year bullet. The monthly payments to me would be 1,171.02 p and i.

I would then make over 16k up front.

A little monthly cash flow and some on the back end as well.

My question is this:

If I do the owc deal and the “ wrap” would I keep the deed in the trust or would the actual deed be transferred to the owner/occupant? I could just do a “ contract for deed” and I would keep the deed until the buyer refinances and pays off the existing lien, correct? In other words, a wrap around consists of the deed being transferred to the new owner and a “ contract” would allow the seller to keep the deed in their possession until the lien is paid off??? I always have a hard time with that as it is never explained right, or I am looking in the wrong place?? Lol!

Any help on the explanation of the deed, and who actual has it in their possession would be greatly appreciated and thanks in advance.

2

Okay, is this a hypothetical deal or a possible deal (you did say that you’ve spoken with the guy twice)?

You mentioned “u-haul money.” Have you read any of John $Cash$ Locke’s stuff? If so, then you should know what to do, here.

First, forget about the stupid landtrust. It isn’t needed. It confuses the sellers, and done as stated, it is viewed as fraud. 'nuff said?

Depending on the taxes and insurance, the initial loan ($133K) has an interest rate of 7-8% or so. I’ll split the difference and say 8.5%. Again following Cash’s principles, you can do a CFD (or Lease/option, if preferred) by bumping the rate up 2 points. Using your figures of a $160K sell, $5K down, that gives the buyer a payment of about $1300/month or a positive of $234/month to you.

You can probably make it an even better return. The seller has homeowner’s insurance. You need to change it to a landlord’s policy (in your name, with the seller and seller’s lender as additionally insured, IMO). In many cases, a landlord’s policy is cheaper than a homeowner’s, thus creating more spread.

Raj

3

Please Please. Don’t say Land Trust!!!

4

Mike, Why not say land trust?? Please explain. They have been used for years supposedly and are perfectly legal.

Thanks.

5

If we’re talking subto, then they are not necessary and in some states (NC) can get you into trouble.

6

I think I was pretty clear on the land trust. It isn’t needed, it confuses the seller, and performed as posted, it can be considered fraud.

Land trusts have been used for years and are perfectly legal, even here in good ol’ NC, IF, repeat IF, they are implemented legally and correctly.

Your example: have seller place in a land trust so that you transfer ownership of property through the land trust. Why do this? The tongue-in-cheek response from the course writers promoting this is “because of asset protection.” The real reason is as stated, so that you can conceal the sale of the property. Can you see why it’s viewed as loan fraud in NC?

If you’re intent on putting in a land trust(for asset protection), then my example:
You have a contract to purchase with the “buyer” being a land trust that YOU have set up. At closing the deed is titled to the land trust, thus keeping your name out of the public record, BUT still showing the sale of the property. Perfectly legal and even okay to do in good ol’ NC.

Raj

7

Raj, Thanks for the good reply. Much appreciated.