Buying Sub2 Then Cash-out Refi
I have received conflicting stories.
If I purchase a property, that is in pre-foreclosure, subject to and get the home deeded to me, it is now my home, right? The original owner leaves or I lease back or I move in, whatever- can I now, immediately refinance the home in my name and cash out the equity? Some say yes, some say no because of seasoning issues.
What is correct here?
Once the property is deeded over to you, after 2 or 3 months, the lender of the previous owners will call a note on the property, thast when it has to be paid in full. So by then you can refinance, or sell it.
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Yes you can refinance if you are eligible for a cashout program. Seasoning issues are not caused by the property they are caused by the borrower
Lori
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So - basically you are suggesting that the original bank will call their note based on the "due-on-sale" clause - however I thought that I once read on John Locke's post that this rarely ever happens.
Any suggestions on how to sort this issue out?
The answer is maybe.
It depends on the lender and jsut exactly what you are doing (owner occupied vs, investment).
John
I dunno thats a tough one. First problem is this. They may try to find out the purchace price if its subject to if that's the case they are going to go off of the purchace price what you bought it for for one year. If its worth 200k and bought for 120k the 120k is the appraised value. You might want to take a trust class. Louis Brown is good I have his course. There is only one lender I know that wouldnt have a seasoning problem. And they take forever and a day and do review appraisals. Buy and hold might be your best option in this enviornment.
Birddog1,
State the cases where the lender called the note due so some of can research the information. I have yet to find one such case in today's times and if you know of them, please share.[ Edited by nebulousd on Date 03/10/2004 ]
Also,
Could you please give us the number of Subject To deals you have done and how many times the note was called do? How many loans did you have to refinance because of a note being called due? How many notes are in your name currently because of a note being called due?[ Edited by nebulousd on Date 03/10/2004 ]
How about, when I get the home deeded over to me, I get an appraisal. This would be a 'pretty house'. The house appraises at 150k, as is, but only 100k is owed. Can I get a new loan for the APRAISED amount, pay off the other loan, and pocket the equity? Would that work?
Thanks for all your comments!!!
Quote:
On 2004-03-10 10:55, caseycat wrote:
How about, when I get the home deeded over to me, I get an appraisal. This would be a 'pretty house'. The house appraises at 150k, as is, but only 100k is owed. Can I get a new loan for the APRAISED amount, pay off the other loan, and pocket the equity? Would that work?
Thanks for all your comments!!!
Caseycat,
Yes, if you qualify. There are many options for qualified people. I work with over 200 banks, each bank has over 100 programs. Each bank and program has guidelines. If there is a program you qualify for it would work.
Lori
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Lori,
Could you please expand on the qualifications to acheive a 100% cash out refinace? Such as min. credit score, stated or no doc., etc.
Quote:
On 2004-03-10 12:18, millionby30 wrote:
Lori,
Could you please expand on the qualifications to acheive a 100% cash out refinace? Such as min. credit score, stated or no doc., etc.
There is no "norm" in financing in the broker business. I use my experience to look at a deal and know what is going to work and what's not. How to structure it and what would be the best for the seller and the buyer.
There are too many programs, every situation is diferent. Ask you broker if you have one. Anyone who is in this business would be happy to go all of your options with you.
The best part about being a broker is that each program has it's own set of rules. So I take the information and line it up to a program.
So there are no specif answers to your question. The kind of answer you want, I am not able to give. But your local bank could answer. Why? Because they have one set of guidelines and one program. A broker has so many.
Ex.
customer A has 580 credit score
customer B has 650 credit score
Customer A got 100%
Customer B got ONLY 85%
Doesn't make sense like that, but once I look at all the factors I understand the lender's position.
Lori
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I just have a couple of questions. I guess I'm just stupid or something.
1) How many properties could you qualify for and have in the works at one time if you refi every property you get sub2?
2) How many sub 2 properties could you qualify for if you left the financing in the original owners name until you sell?
3) Isn't one of the major advantages of acquiring sub2 "NOT" to use your personal credit?
4) If you're going to do this, why purchase the property Sub2 in the first place?
Once you own the property, you can pretty much do what ever you like as long as it's legal, and you qualify. I just cant understand why this would be your strategy going in to a deal.
Sorry,
Jeff
Because there are houses out there with troubled owners and lot of equity in them. For someone needing cash now, like me, this can mean large sums of cash up front, at first. Get someone in there making the payments and in a couple years sell, and make a little cash again. I know of someone doing this. However, I can't get a hold of her. She has been doing this for 11/2 years and does this full time now and does 4-5 deals a month and hardly ever nets under 25k cash each time. She won't hardly go after a deal without at least 50k in equity. These are pretty houses so they don't need repairs and can appraise at FMV. She said at first, she couldn't do as many deals, until she built up her credit rating. But now there is no problem. She is just very busy and I can't get her now to return my calls, so I am trying to figure out on my own how she is doing this. Your input helps.
Thanks again.
caseycat,
I doubt very much that her strategy is to refi immediately. there is no advantage to her to do this -vs- buying the normal way, and pulling cash out of financing when she purchases.
Yes people do net 20-25k per deal all the time, when they get their tenant buyer to fulfill the terms of their contract with you and bring new financing to the table.
I'm not saying that it can't be done the way you're trying to do it. I just don't see why you feel you need to do this sub2.
"...hardly ever nets under 25k cash each time. She won't hardly go after a deal without at least 50k in equity. "
Not to be an ass or anything like that, but which one is it. If she hardly goes after anything less than $50K, how is she hardly netting under 25K each time. Those 2 sentences just jumped out at me and didn't make sense.
caseycat,
If there will be new financing right away, she might as well purchase the property outright and finance above the sale amount and cash out that way. The lenders will generally hold off on the foreclosure to allow a sale to happen if the buyer is qualified, and there is a legitimate purchase offer on the table. Foreclosure is an expensive process, and they will avoid the expense when possible.
If she is getting the property deeded to her, she has a few of options. 1st being to bring the existing loan current and stop the foreclosure, which buys her time to bring in new financing to cash out, and then sell the property. 2nd, she needs to get the property deeded to her and get a new loan funded before the foreclosure takes place. 3d Bring cash or hard money to the table and do it that way.
My personal opinion is that if you are going to use your own credit to finance properties anyway, why not do it and be done? The sale is conducted in the same manner that they and everyone they know is used to, and raises no little warning flags when they sign over title etc. There are no CYA letters, No POA's or anything else to raise questions about the legitimacy of the sale, or the process.
Sub2 is in my opinion legal, and a legitimate way to get things done that you can't do conventionally. If you direct the process correctly, any questions raised by the seller in a sub2 deal can be handled easily.
Sub2 will provide you opportunities to acquire properties using someone elses credit, and existing financing, allowing yours to remain available to you. Sub2 in this case doesn't help to facilitate anything that you can't do conventionally .
Sub2 investing is a wonderful tool/technique, but it probably isn't the best strategy to use in every situation, by everyone.
Good luck,
Jeff Mueller
Jeff,
I think there are a couple of things you are not considering. First of all, I can take title subject-to in a matter of a couple of days, however if I do a traditional purchase with financing I'll be waiting 30-45 days to close. If I'm dealing with a motivated seller, time is of the essence. Second, I believe it is easier to qualify for a refinance over a purchase. By taking title subject to, you get the deed...you own the property, which allows you to refinance. Doing an outright purchase forces you to qualify for a new loan, and thus jump through the hoops of qualifying for a purchase loan.
Here is how a local deal would work for me.
The house is worth 110K with 70K owing and 10K in arrears. Payments are $781.33
I think that with 15K in repairs I can bring FMV to 135K.
I go in, take the deed subject to giving the seller 10K for his equity. I pay the arrears of 10K to bring the loan current and make my repairs over the next two months paying $781 a month in payments. I can then sell the house for 120-125K to a new buyer or pull cash out by refinancing it myself for my equity. 30K isn't a huge amount of profit but not bad cash on cash return.
The options are endless and I have never know anyone to have problems getting their money out regardless of what it sold for. Find a new lender and pay for an appraisal.
millionby,
If you're refinancing immediately, what makes you think that you're not going to have to qualify for that financing?
If you have a contract, you have no need to close in 2 or three days, if the seller needs to sell because of foreclosure (as given in the example that started this string) the urgency of the situation has just been made a non-issue for the seller, especially if they are still in the house.
I did not say that you couldn't do it this way, I just question the why.
It's becoming obvious to me that I'm not doing very well in my attempts to convey my thoughts regarding this, so I'll just call it quits on this one.
Good luck everyone,
jeff
Thank you EVERYONE for your insight.
Another question- I had a lender tell me I can not get the property deeded to me then turn around and refi because of seasoning issues. Is this a problem?
Jeff, I a really appreciate your input, please stick around.
caseycat,
There are still lenders around that do not have seasoning issues, however they are apparently getting harder to find, as the trend it seems is to follow the lead of the FHA programs which do have seasoning requirements. There is also a question as to wether those lenders will have programs with competitive terms when compared with those that do have seasoning issues. I have not researched this last point myself, so I am not qualified to comment on that. There are still programs available that do not have seasoning issues. You'll probably have to find an independant mortgage broker to find them though.
Quote:
On 2004-03-10 12:14, tinman1755 wrote:
Quote:
On 2004-03-10 10:55, caseycat wrote:
How about, when I get the home deeded over to me, I get an appraisal. This would be a 'pretty house'. The house appraises at 150k, as is, but only 100k is owed. Can I get a new loan for the APRAISED amount, pay off the other loan, and pocket the equity? Would that work?
Thanks for all your comments!!!
Caseycat,
Yes, if you qualify. There are many options for qualified people. I work with over 200 banks, each bank has over 100 programs. Each bank and program has guidelines. If there is a program you qualify for it would work.
Lori
Now once you cash out the 50 thousand here, what would you do with the house? Rent it (would you get pos cashslow?) Lease option?
I am doing something simalar, but I am renting them out, and I'm cashing out only what I can afford to still keep a pos cash flow. But I'd be interested in seeing some other options with cashing out the equity. So to sum this up....
Ok you cashed out the $50k equity, now what will you do with the house?
JB
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