Subject 2 Math

How do I figure out how much house my tenant buyer can afford?

For example I have a potential buyer that has $3000 in option money.
He and his wife can afford $1100-1200 monthly. How do I use these numbers to determine the price range of the house I need to find for them or even to realize the OM needs to be higher?



There’s no simple answers here, because there are too many influential variables to consider, such as loan terms and rates (interest rates), taxes, insurance, and hoa fees. Otherwise, you’re attempting to thread a rope through the eye of a needle, while standing on your head …blindfolded.

Be that as it may, simplistically speaking, you need to find a seller who has house payments (piti+hoa) that are less than $1,200/mo. It’s a crap shoot what the price would be.

Let’s say you found a seller with a payment of $1,200/mo. Then you find out the interest rate on his loan is 13%, Well, that might sound good until you find out that the payment was on a 2/1 mobile home, or a 1/1 condo. Then what?

It’s better to look for sellers first; qualify them and their houses; close on the “good ones” and then find a buyer. Buyers are a dime-a-dozen by comparison to the number of acceptable houses you’re gonna find. Just saying.


I agree with Javipa: if you find a motivated seller and get a good deal, finding a buyer can be as easy as an email blast to the email list for your local rei club (that’s how I found my buyer).

Additionally, right now you have 1 buyer. Unless this guy plans to buy 2-3 houses per month, or you plan on making 1 wholesale deal and then quitting, you would be better served to focus on finding many motivated sellers/good deals that you can then wholesale to many buyers (especially investors who don’t need to personally love the house, just love the numbers), than to focus on trying to find that 1 special house with 1 specific set of numbers to satisfy 1 retail buyer, who will make you money just the 1 time. My 2 cents.

Hi,i am sorry i am unable to help you with your problem without coming with one of my own,but i hope i able to help you
in the future i will be there for you. One question. What method do you use to line up buyers for your sub-to deals.I lost
a deal because the buyers were buyers until i produced the property.

That makes me laugh, because it’s so true. Looking for buyers first is just so wrong. Find the deal, and then find the buyer.

There’s a half dozen gurus marketing courses that are all about finding buyers first (shaking head). I suppose it attracts the fearful people with zero experience, I don’t know.

The one thing that separates the sheep from the goats is how obvious the deal is.,52017.0.html

This thread is a great illustration.

Despite the deal that was offered, it wasn’t obvious to buyers.

Sometimes the deal isn’t obvious, because it’s not a deal. Sometimes the deal isn’t obvious, because we’re not marketing the property correctly. Sometimes we’re pitching the wrong sellers.

Everyone should listen to javipa because he is a pro in the real estate business. :banana

Figuring out how much house your tenant/buyer can afford is fairly easy. Look at how much they make at their jobs. Minus out what they owe or pay in debts. If they that end number is less than 35-40% of their take home pay, that is usually a good bet that they can afford it. I don’t try to reinvent the wheel. Banks do this as well. They look at (among other things) debt-to-income ratio. I keep this in mind because when it comes time for me to qualify my tenant/buyer the bank will use that same scrutiny, so why shouldn’t I? Anyway, I use a mortgage broker to do this sort of thing nowadays.

Hi fellas,i am relatively new to this form of acquiring property.I run into quite a few houses underwater and sellers that
want relief.What options would any of you guys suggest.And are there companies that analyze the data for you.I would
like to automate or delegate that part of the deal to free myself up to look for other motivated sellers. :help

The standard on a conventional loan is 28% of one’s income can go to the house note. 36% of one’s income can go for the house note and bills combined. So the fact that they say they can afford $1,100 or $1,200 per month is inconsequential. What are these numbers based upon? You need a complete picture of their finances (money coming in and going out) to determine whether you feel they can afford to spend a certain amount. Also, what about reserves. What if one of them gets sick or has an accident. How long can they pay the house note in this situation.

Of course, the matter of credit is essential. What is that like?

There are a lot of good people out there now with bad credit due to circumstances beyond their control. A lot of these people are in recovery mode now. Do you want to take that into consideration as well?

There is a lot to think about.


If we’re gonna focus on prime candidates that can qualify for conventional financing, we might as well stick to conventional real estate.

Sub2 is not conventional. The advantage(s) of Sub2 financing is that conventional hurdles don’t apply.

If we buy with Sub2 financing, we can then sell the financing with higher terms, to those who can’t qualify for conventional financing in the short term. Otherwise if we’re looking only for AAA credit buyers, we might as well sell outright. Why finance a property if we make the same by selling for cash?

Of course there’s a LOT of money to be made in financing deals, if we’re able to. More importantly, we’re able to make that money on deals that a conventional investor would not. Why? Because we’re able to buy Sub2 on low/no equity deals, that make zero sense for the regular flipper, and then pass on the terms to an end/user Buyer.