Sub2 exit strategy

General Real Estate Investing
1

So finally I got one subject to. I had the owner xfer to trust and assign beneficial interest to myself.

My question is what are some of the exit strategies.

  1. Lease the prop to an end buyer with option to purchase beneficial interest? Should I give a % of beneficial interest to buyer in this case? if so, how is a default/non-exercise of option handled. I mean how do I get back 100% beneficial interest if the buyer does not exercise or defaults?

  2. Deed to new owner with a wrap? If so, what’s the point of going thru the whole trust thing since the transfer of the deed (insurance notification) will alert the lender.

  3. Other??

What do you guys do?

2

Ok, no offense but I would never sign up a sub2 deal (or any deal for that matter) without knowing exactly what I was going to do with it first. How do you know if the numbers even make any sense? Can you lease it for enough to cover the payments?

Having said that, we usually lease option sub2s - I don’t want to start talking about deeds and things like that without them qualifying with a bank. They’d have to put a lot of money down before I’d want to go through all the that. LOs are the best way to go IMO.

good luck

3

Hi, Thanks for the quick reply.
Actually the numbers made sense if i go either way - there is some equity in the property.

If you done mind, can you elaborate on your model? Do you put your properties in a trust?
If so, are your option to purchase structured to sell ‘beneficial interest’ as opposed to the property itself? Do you assign any beneficial interest to the buyer? How do you handle defaults?

Sorry about so many questions and thanks

4

Dallas Flipper,

Sell using a Land Contract (aka: Contract for Deed/Agreement for Deed/Installment Contract to Sell Real Estate, etc.); keep your deed in the name of your trust and remain the beneficiary; use a note servicing company to receive/make payments to lender/tax assessor/insurer/hoa and you; don’t allow buyer to record of any documents, including a notice, or memorandum of interest, or notice of agreement, etc.

Make sure a default occurs if any taxes, insurance, or loan payments are not paid on schedule.

Use a cognitive promissory note, if legal in your state in the event that your buyer defaults and is tempted to literally or figurative squat in your property without paying for it.

:banghead.

If you seller finance a house that’s not your personal residence, you’re going to need to sign off with a SAFE loan certified person, because the government can’t help, but micromanage and interfere with our financing …also don’t offer interest-only financing, since that’s now, ridiculously illegal, too …for no reason.

When my buyer gives up and wants to move without paying me off, I’ll know by the fifth day of the month. That’s because my buyer is required to pay me, in advance, on the 25th, and if I’m not seeing a receipt by the 1st… I’m making calls.

Also, I put a couple of payments to the side, in the event there’s a hiccup on that loan repayment by my buyer. Sometimes, I have to help the defaulted buyer get out of my property by paying them to move out by a certain date (like in 5 days). They can put their crap in storage and live with friends/relatives until they can find another place.

If they get stupid, I get VERY aggressive with them.

I keep every promise, and promise, of a promise I make to a customer/renter/buyer/optionee even if it’s inconvenient. Then, if/when it becomes necessary to remove a dead-beat wannabee, they believe me, without question, when I suggest that I will make their lives a living hell if they attempt to screw me. I tell them that I’ll force them into bankruptcy, if possible, or chase them until their great grandchildren are dead, or I get paid, whichever occurs first.

Of course if they move without a hitch, I tear up all the notes and contracts and bid them farewell (if not good riddance).

Then… I resell the property with another $30,000 down! Yay, I love defaults!
:biggrin :biggrin :biggrin

5

Javipa;

Side note - my handle is DALLASFlipper :biggrin
meaning I am from TX - where everything under the sun is illegal. :rolleyes

So the CFD thing you suggested - though nice sounding - is a no-no here. Many post on this
forum discussing how LO and CFD being all but illegal in TX.

This is why I am prompting a discussion on this topic…
Thanks for your input.

6

Okay DallasFlipper… I think I get your deal now.

Have you considered a triple net option? This would mean the buyer options your property and agrees to take responsibility for everything involved in its maintenance and operation just like an owner …and is allowed to occupy the property during the option period.

That is, instead of leasing the property to the buyer, just give him the right to possession contingent upon regular option payments. The “rent” amount is 100% option money. Any portion of it, or none of it can apply toward the price.

Meantime, the option is contingent upon the consideration being paid on time and the Optionee assumes all responsibilities as an owner would. If the option payments aren’t made, or the Optionee fails to pay the taxes, insurance, etc., the option is extinguished along with the right to possess the property.

I don’t know TX law, so…

Meantime, if Trusts are OK to use to buy and sell with, than just include whatever language you need to define a default on payments within the trust documents. If a deed needs to transfer to the buyer’s trust, if any, then OK.

However, I would (if it’s legal and/or enforceable in TX) have the buyer escrow both a Grant Deed and Quit Claim Deed, in your favor, to be recorded in the event of a buyer’s default. If the buyer defaults, you just record the Deeds and then evict the occupant, or pay them to move like we do most of the time.

That’s all I’ve got. Hope it helps, more than confuses.

7

This is a great exit strategy but actually you’ll just do an option for them to get the HOUSE not the beneficial interest. You own the trust which owns the house so effectively you own the house. So when they’re ready to exercise their option to buy the house your closing agent will have the trust deed the house directly to the buyer into their name. Reason: most random people just don’t understand trusts and they’ll just know something is fishy if they don’t get the deed in their name at closing. We know better than to put a house in our name but good luck trying to explain that to a buyer, essentially for no benefit to you whatsoever lol. Don’t worry much about this right now, your closing agent will handle it. At this point just write the option for them to get the property directly to the seller.

How will the lender know? In theory they could call your county land records dept but why would they do that? Even if they did, would they call a loan due that is performing? Not in this fiasco of a market. A wrap is totally fine if that’s customary where you live. The purpose of the trust is to keep you or your entity off public record.

You could simply assign the deed (or beneficial interest) to a buyer in exchange for the “down payment” and be out of it altogether. This is called a mortgage assignment.

8

Javipa,
How I don’t allow buyer to record of any documents, including a notice, or memorandum of interest, or notice of agreement, etc.

thanks

9

What do you mean “how?” :biggrin

I just do not make a provision in my documentation that allows a buyer to record anything. If the buyer won’t agree to that, or complains, questions, or whatever …then I get another buyer. I don’t have to sell to any particular buyer; just the ones that are willing and able to play by my rules.

Meantime, I sell using a Land Contract (Contract for Deed). I tell the buyer that I put his deed in escrow and as soon as he can pay me off, we’ll record his deed. That always satisfies my buyer’s concern.

That said, as a professional, I won’t buy if I can’t record MY agreement or record a “memorandum” of some sort against the property. Why? Because I am TAKING MONEY from a third party on behalf of that property, and I must have some equitable interest documented.

In the worst case, a buyer could go around me, once they learned that a seller was willing to be creative …and cut me out of the deal …if I haven’t recorded the notice of my agreement with the seller.

To expedite the issue, I’ve learned to simply include the necessary recorded documents with everything else the seller needs to sign when buying, and never get into the mechanics of the deal beforehand. I just refer to the generic “paperwork” if the seller asks questions like that.

Frankly, sellers that ask me very many “mechanic” questions are NEVER (as in only in a parallel universe) going to close on a deal. Motivated sellers rarely “get into” the mechanics. They just want the result I’m promising, not an education.

You’ll find that people who want to know the mechanics of a deal are either competitors, newbies, or fsbo’s/frbo’s trying to either sell their own houses creatively, and/or have zero ability or willingness to pay us for our time or talent in the first place. So beware of the time wasters.

10

Javipa

thanks, very helpful information! :biggrin

11

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