Are there certain types of REI that are not as good as they used to be, or more risky, or any other factors that make them less attractive? I know that getting traditional financing is a lot harder than it used to be. But, there are other ways such as wholesaling, private money, sub2, etc. I personally have always liked sub2 because you don’t have to deal with getting any kind of financing or credit checks, but you can build up monthly cash flow. But even with sub2 there is almost no discussion going on anywhere online. What is causing all this? Assuming you are not in a market where the majority of houses are severely upside down, why is sub2 not the hottest topic in REI right now?
Where are you that Sub2 works so well? Tell us what you do.
The point of my post was to ask where the discussion is on sub2, and why there seems to be very few people discussing it. To me, everyone should be talking about it, but that is not the case. I want to know why not.
I said that sub2 is my favorite, but I didn’t say I had an easy way to do it. In fact, I want to hear about who is actually doing it and what they are doing that is working, (ie. best method for finding motivated sellers).
Sub2 financing is a core financing strategy for rehabbers and flippers like me. and always will be for anyone who knows what they’re doing. That’s how I bumped myself up the food chain back in the early nineties, before Sub2 was a word.
Before that, a commercial real estate broker helped me figure out how to buy two businesses using sub2 financing.
Frankly, Sub2 isn’t for everyone. There’s a lot of people who are skiddish about using Sub2 financing. Why? Because they think its the red-headed step-child of real estate financing, or worse, illegal.
Of course it’s not illegal, and it is the financing option of choice for most any rehabber, wholesaler, or flipper who’s worth his salt. However, I tell everyone thinking about using Sub2 financing in my farm, that Sub2’s are ‘illegal,’ so they won’t think of competing with me for deals. I’m not sure how effective my lie is, but why encourage someone ‘that’ close to me? 
Notwithstanding, when an investor considers a Sub2 deal as the ‘hail Mary’ approach to financing, then it nearly automatically puts them on their heels during negotiations. If they aren’t sold on the solution, the seller certainly won’t be.
Another reason you might not be hearing about Sub2 as much, is that there’s just fewer people out hustling real estate deals right now. There’s less activity concerning real estate investing across the board as far as I can tell.
I think it’s because we’re now in a trough of interest. Traditional investing schemes are more the norm. We’re back to actually qualifying for mortgages, proving incomes, and generally operating in the 1950’s again. You would think this would make Sub2 deals all the more interesting options for investors and sellers. You would think.
But it seems the news-makers are really good at scaring people away from real estate investing right now. Making matters worse (or better depending on your perspective), we’ve got major RE gurus telling us that real estate as we know it, is dead …and then proceed to tell us why it’s not dead, if we give them so much money a month for the “inside track.” Yawn.
The inside track is buying what nobody else can, or will. I happen to like upscale houses with no equity, a failed escrow, and an owner with a job transfer. Yay for Sub2.
I just talked to a friend of mine that just closed on six real estate deals in 60 days doing little more than posting 6 ugly bandit signs in his neighborhood. Then he quit, because it was taking too much time from his real job. If he’d been listening to the news, or the famous gurus, he would be six houses shorter.
The question remains, “Why isn’t this being talked about more?”
Again, I think it’s simply because the news scares a a lot of people away from real estate investing in general right now. And/or they think the good deals are gone. And/or the government is making it too hard to invest. Or whatever.
The less competition for deals, the more grateful I am.
Excuse me as I return to waxing my enormous back fin, so I can better navigate to the juiciest Sub2 deals before the competition even knows they exist.
Thank you for your insight. What you said is what I assumed was the case.
What is the most effective way you all have found to locate the motivated sellers for sub2/LO deals? Many of the sub2 courses out there say to just put up bandit signs. I have used bandit signs in the past with some success, but in my area the local utility people will call and threaten you with fines if you put up bandit signs. I could put up bandit signs on 4 ft stakes, but we have a foot of snow on the ground right now with more coming in tonight. I also hate going out at night and putting up the signs.
Direct mail? If this is a good and effective way to locate the motivated sellers, where can I learn the in’s and out’s of direct mail?
What else?
@Tlance, there is a lot of conversation out on the net about sub2’s depends on where you are looking…
Subject2’s have to make sense wherever you are… For instance, sub2’s transfers tittle from seller to buyer. That change in title triggers transfer tax in Pennsylvania of 1% and Philadelphia city transfer tax of 3% for a combined transfer tax of 4%… that alone will deter me from purchasing a property with no equity… Unless the cashflow is through the roof, in which case, i’d want more control over the asset…
Depending on the situation and your personal circumstances, you choose the most viable technique.
Have there been any law changes which affect subject to deals?
You can do whatever you want as long as you own the property you’re financing, and the buyer is an investor. The question is (based on your state and the guidelines they’ve set up) whether you were/are an owner-occupant, or not. Also, there may be restrictions when seller financing an owner occupant.
Meantime, you may be able to seller finance up to three properties a year to owner-occupants without using a mortgage originator.
In CA the MA costs about $300 per transaction. Frankly, I like farming out this grunt work to a professional. This way it removes me from the technical details of the transaction, and further frames “ME” as NOT the banker.l Instead the ‘bank’ is the loan originator (attorney) and the note servicing company, and no checks are written by the buyer to me personally.
This is important, because if/when the buyer has some financial hiccups, he’s not taking his problems (theoretically) out on me. It’s not personal.
You need to contact a real estate attorney, or your state and find out what your state requires in light of Frank’n’Dodd’s monster legislation.
Also, there are restrictions regarding the terms you can offer a residential buyer. Again you need to check with your state, or an attorney for specifics.
Hope that helps.
Then take Voodoo dolls of Barney Frank and Chris Dodd and poke all sorts of pins in their eyes and heads.
It won’t do much to change the laws, but it’ll make everyone feel better.
Thanks for the input. So if I am buying a property as an investor (non owner-occupant) using subject-to and owner financing, there should not be an issue? (although I should check with an attorney to be sure)
“Yes.” In a word. :biggrin
Javi,
You always have alot to add. When do you have time to suck up all these deals in CA.
Hey buy the way I know another big Sub-to guy in you backyard. I’m sure you and Marko battle it out alot for deals alot.
Who’s Marko?
The great thing about real estate investing, or owning any business, is that it doesn’t demand 100% of your time. If it does, than that just means one isn’t a business owner, but a business operator. There’s a difference.
I’m a business owner.
What’s really great about owning a business is that all of the daily decisions and operations can be delegated to someone else, so the owner can focus his time and attention on the dynamic parts, and decisions that only he can make.
In my case this is pitching and closing deals. Not figuring out how much Scotch tape to buy, or who’s got the cheapest toner, etc. I’m not there 100% yet, thank you.
However, let me give you an example of how it’s done correctly:
I will meet with a couple that responds to a card my office has been sending for the last five months. But first, somebody in my office sifted the prospects, and set an appointment with the sellers, according to my “pitching” schedule.
After that, I do what only I do; qualify, pitch and close on sellers (or walk).
However, that doesn’t happen if I fail to delegate the grunt work.
Meantime, when things are working like they’re supposed to, I have fun participating here.
Yes I agree, once your able to put the right people in place to delegate to, it sure makes this job easier. I had that back in OK but since moving here, I’m having to be the grunt again for awhile and I will tell you. Stamping and labeling letters and postcards again SUCKS! I set infront of the TV and NCIS or GOLD RUSH while pealing and sticking… UGH.
I’ve stared my postcard campaign this week. Sending out 1500, I need to buy 2 this month. I’m behind for the year since I moved to FL. My goal is 12 GOOD deals this year and anything over that is gravy. Going to focus on median income homes which is $150 to $250 here.
What way works best for you to find your buyers for you deals? Signs, Craigslist, local paper adds. I’m thinking of running a blind add on Craigslist to see what kind of response I’ll get here.
New area so I gotta figure it out.
Thanks for your input.
Just depends on which I’m targeting. The NOD (notice of default) list YES. I plan to hit them 5 times. I want to stay in their face.
I’m starting a high equity mailing also and will probably just hit that list once per zip code.
We’ll see. I’m testing alot right now. New area and market. Gotta find what is working best. Here’s how my mailing goes. Postcard, postcard, yellow letter, check letter and yellow letter.
The more I’m able to buy the more I will up my marketing budget. I would like to be mailing 5000 a month within 6 months and have it all on autopilot like Javi, but I’m not a greek god of real estate YET but I CAN see the gates of Olympus.