Hello all. I am new to this group, so I hope you will have patience with me while I ask my first few questions. I am 24 years old, with very little capital. I have about 8 to 10K. I have a few “subject to” questions.
I suppose I am trying to determine everyone’s opinion on these types of deals and determine the risks. My questions are as follows:
First, It seems to me you make money when you buy, and these deals generally have very little equity. Is this generally correct?
Second, what in the heck would you do if you couldn’t fill the house you just bought “subject to”? As I said above, I don’t have a lot of funds, and going a few months worth of mortgage payments would hurt.
Third, the starter homes in my area are literally $400K and above. I live in Florida, and speculators have driven the market up several years in a row. Now, there are so many of these homes on the market while everything cools down. In fact, brand new homes are sitting on the market for months. Therefore, are “subject to” deals even a legit investment vehicle in my area?
Thanks in advance, and I appreciate any feedback.
Good percentage of these homes are owned by investors. Bought them cheap and the equity is max out for them not you.
It is a very tough market for newbie. I send you this link to alarm you. Don’t fall into this trap.
Subject to is like an advance collage course. You wouldn’t take junior or senior classes first if you are just a freshman
To answer your questions:
Sub2 deals can have little to no equity to a great deal of equity. Generally speaking, why sub2 works is because it works with low equity deals. A sub2 investor makes money off of their knowledge of the market and their marketing strategy. You make money when you buy because you know that you can sell or lease the property faster than the original seller.
If you don’t have a marketing plan to find an end buyer/renter to make that payment, and you can’t make that payment, then don’t do this kind of investing. All investments have risks. You have to choose the investment that has risks that you can manage.
If you’re in a market that has been over-valued and is in a cooling faze, watch out!!! That cooling faze may turn into an outright decline. You don’t simply want to trade positions with the seller. If properties in your area have liens that are, or are going to be, higher than resale, then buying sub2 is probably not the best investment strategy.
I just took a look at that article. I understand it’s purpose is to educate newbies to the real risk associated with REI. However, I don’t particularly like the way it goes about it.
Blaming the “guru” is a joke. Unless the “guru” was sitting beside this investor telling her what to do, the investor made the decisions. I have NEVER read one book or course that does NOT say do your OWN due diligence!
From the article, the what caused this investor’s problem was that she did NO due diligence. She didn’t even know her market. How could she have determined what appreciation level to add to the price?
Generally a good article, just suffering from the new global mentality of “blame someone else.”