To Sub To, Or Not To Sub To, That Is The Question
I have a $40,000 degree in English that needs to be used up, hence the title. My question is concerning a debate over hard money vs. sub to. Since I also have construction experience, I am looking into rehabbing. I would hate to Rehab an ugly house and lose the money I invested by an owver who decides to pull out; thus, am leary of using a sub to agreement to get started in the Rehab end of REI.
I would like to hear from those who started in the Rehab market with Sub to and those who started with Hard Money. I would like to know what of those options you recomend starting with and what your experiences have been, what wisdom you would like to impart, etc.
I think you might be misinterpreting subject to investing. When you purchase a property subject to, it means "subject to the existing mortgage." A quick summary, you have the seller deed you the property, you pay the seller some money for their equity (once they vacate the property), you rehab the property, and sell it to payoff the original seller's loan and cash your equity out.
Example:
FMV = $100,000
Loan Balance = $75,000
Repairs = $10,000
Cash to Seller = $2,000
Equity = $25,000
Profit Potential = $25,000 - $10,000 (repairs) - $2000 (cash to seller) = $13,000.
Buying subject to is easier because you do not have to find a mortgage to purchase the home. Using a hard money lender is good if there is a lot of equity in the property (i.e., you are buying a $100,000 property for $50,000). Hard money lenders usually lend up to 65% LTV and charge high points and high interest rates because they are expecting you to immediately sell the property.
You should find a good mortgage broker that works with many investors. They can find the best loans for what you are trying to do. Mortgage brokers can find other loans, besides hard money lenders, that can suit your situation. I hope this helps give you a better insight on ways to invest for rehabbing.
Tanya