Sub2 and a second note?

General Real Estate Investing
1

I had a seller call me over the weekend about a house they want to sell. They owe $146,000, and I comp’d the place out at $155,000 (on a good day). It needs about $3,000 in repairs (paint, carpet - nothing major). After deducting a couple months of holding costs and selling costs, I’d be good to break even buying it at $140,000. Which leads me to the following circumstance …

Let’s say the best I can offer for the house is $120,000, and I would take the property Sub2 for what they owe, $146,000. Would it be possible to create a 2nd note for the difference ($146,000 - $120,000 = $26,000) and have the seller’s pay me in monthly installments. Say, $144/mo for 20yrs @3% or something like that. Has anyone attempted this before (taking Sub2 and have the sellers pay you)? The reason I’m suggesting it in this case is that the homewoners are not in financial trouble (i.e., not behind on payments, do not have any other leins, not getting a divorce, etc.). The husband just got a job transfer 300 miles away and they need to unload it quickly to move on.

2

Generally, when you take it sub2, you take it sub2. There are scenarios where you should ask for money. I don’t know that this is one of them.

If you think you will break even, then I’d be curious to know what your exit strategy is, because i see an easy profit without taking the profit out of the sellers pocket book.

Start by offering $10.

How were you planning to dispose of the property. That should clear things up for me. Of course, maybe the area has you concerned. I have no idea where this is or what sort of neighbors they have.

3

Actually, it just dawned on me that a second note attached to the property would be useless as I would now be the owner. Basically, all I would have is a contractual agreement, which could be harder to enforce without a lot of monetary effort. Therefore, I doubt this whole thing would be a good idea.

4

$144,000 plus $3,000 (Fix expense) = $147,000

Then Sell it:

Ask for $5,000-$7,000 down
Tack $150-200 per month on top of underlying mortgage
Sell using a wrap for $162,000 with a two year balloon.

(Disclaimer: I don’t know wraps from apples, but you’re in TX so that’s they way it is down there)

Fiddle with the DP if you don’t get bites. Profit potential:

$7,000 downpayment
$5,000 ~ monthly cashflow
$18,000 ~ backend profit when buyer refinances.

I don’t know any details, but this is a fairly standard subto type of deal. You could make even more. The numbers could be different (higher, lower) but this is the jist of it.

Come to think of it, get them to pay your the $3000

5

You can get security interest in things other than property. Do they have anything else of value?