I would challenge your assessment of this deal (in the nicest way of course!).
Your advice is excellent for the conventional deals, wholesale deals, hard money deals, and any other deals that have conventional overhead and/or substantial carrying costs. However, low-equity deals require the use of “subject to” financing …and quite frankly is about the only resort in these cases.
Let me give you an example of a recent, real deal.
We had a house that was valued in the high $300k range. However, the loan balance was over $400k. There was no equity to pay a Realtor, carrying costs, or appraisals, etc., etc., without coming out of pocket.
The seller was renting the house with a severe negative cash flow. We offered to take over his loan, with the tenant in place, if he would give us the deed. He agreed.
We talked with the renter to see if he was interested in buying the house. He was. We told him that his payment was going to be higher, but we wouldn’t require him to qualify for a loan for at least five years. He was interested, understood, and agreed to the higher payment (which was slightly higher than the current PITI+HOA).
The juicy part of the deal was that we wanted $30k down, or about 7% of the final sale price (which was the loan balance plus $30k, or $440k). The tenant agreed to pay us that amount and pay the higher payment. It was win/win/win.
The original seller won relief from both his debt and negative cash flow (and a management responsibility). The tenant won home ownership without qualifying for a loan! We won $30,000 just for putting the renter into an ownership position.
If we had waited until there was 30% equity, we would still be waiting. These deals are EVERYWHERE, but it takes some creativity and being on the lookout for opportunities.
Otherwise your advice is very well taken for conventional deals. However, “subject to” is anything, but conventional …for us anyway.