Some say that a seller with little or no equity is the best scenario for Sub2, and I’ve heard others say that Sub2 is meant for sellers with a lot of equity. I’d really like to add a Sub2 to my portfolio soon but want to make sure I’ve got it down. To me a seller with little or no equity would be perfect to get the deed sub2 and then owner finance it to a buyer. Also, Land Trust or no Land Trust? Please give me your take on these questions.
Sub2 can work in both scenarios, but it’s much more likely you’ll get an owner to agree to Sub2 when they have little or no equity. With a lot of owner’s taking on adjustable mortgages, make sure you verifiy the terms of their mortgage so you don’t get caught with payments that continue to increase beyond being a profitable deal.
Here is my take. You make your money when you buy. Low or No equity makes no sense to me. Lets just say you are here in Florida like I am. You find a property that is worth 200K and they owe 185K. It takes 2 months to occupy the property. Your holding costs on that property is 3K per month. You are down 6K before you fill the home. Now you may expect to get that 3% down from a tenant buyer. But now you are trying to find that internet stock that is going to sky rocket.
Personally I would say get to know your numbers. Enter what your expected profit is. Then go forward. Stay away from pushing the numbers when trying to sell in a premium. its a gift when you do.
Just the way I see things.
And in a falling market expect the prices to drop some while you are holding so be sure to factor that into the equation also.
It is harder to get people to sell sub-2 if they have equity to discount the property and sell to a retail buyer. I do deals with thin equity in Texas. If the equity is thin you want to get the seller to agree to make payments for a number of months to account for the holding costs. You can also get them to pay you to take their house if they have “negative equity” by selling through a broker to a retail buyer. You can get “points” in the form of an “owner finance fee” when you write the wraparound note to the new buyer which will boost your returns and mitigate risks associated with default in the early part of the loan. You can also mark the sale price and interest rate up on the note you write to increase monthly cash flows and the terminal cash flow.
I use land trusts and they have worked fine. Others inform the lender. The “right” answer really depends on your risk tolerance and what you think the man with the robe will do if the original seller gets mad at you for some reason. As long as you strike a fair deal with the seller and address their needs I think land trusts are fine and there is no need to inform the lender. You are doing the lender a favor by savings their non-performing asset ratio.
My two cents…Hope this helps…
Sub2’s are for you to buy property to profit from. It almost…makes traditional financing obsolete. I have had sub2’s from 10k to 150k profit it all depends on the sellers situation/motivation. I only use them for properties that I plan on selling immediatley, I dont want to cause grief for me or my sellers by holding their note. I let them know the note will be in their name till I sell within x amount of days/months. I use sub2’s for short term holds, like they say…make your money when you buy, cash the check when you sell.