Initial Thoughts/questions About Sub2
I'm curious about sub2. After watching posts periodically in this forum, it seems to me that the seller has nothing to gain and everything to lose in a sub2 deal.
From my perspective, it seems that the seller is at the mercy of the buyer to make payments on time. You can use a third party to make the payments, but then *both* parties need to get a monthly report of when payments are received and made.
Even if you have a third party receiving and making payments, the seller is still responsible if the buyer doesn't come through with their part of the agreement.
So my questions are. With all of these risks, why would a seller have any interest in sub2? What can I do to eliminate the risk to the seller and assure them that this is a legitimate means of selling their house?
Thanks,
Robert
[addsig]
The seller is at the end of his/her road and is facing foreclosure usually. They get themselves into a hole they simply cannot get out of. In my area the number one reason I get for this is loss of job.
I'm not sure what else I can tell you other than that a sub2 has been done in every area of the country and it can work for you.
GOOD LUCK
myfrogger,
Thanks,
Robert
[addsig]
Robert,
It is late where I am so, I will finish this post tomorrow, in the mean time I want you to look in the mirror, if you look real hard you will see you are wearing a conventional hat tommorow I will ask you to remove that hat and put one on that I am going to tell you about.
John $Cash$ Locke
Everyone's motivation is different, some may be trying to avoid bad marks on their credit report, others may be in foreclosure, still others may have to move tomorrow, and can't wait to do the transaction, some may have a new house being built, and can't close on the new house until the old one sells, Maybe they have so little equity that they would have to pay at settlement to sell conventionally, etc. Who knows what their motivation will be, but they are all motivated, or "Anxious" to sell their property. They feel that they need to sell now, not months from now. Sub2 is a way to facilitate their needs, and make it possible for them to move on. It's up to us to maintain integrity, and follow through. Afterall, that's how we get paid.
Jeff
John,
I look forward to your non conventional answer.
Thanks,
Robert
Quote:
On 2004-06-23 23:43, JohnLocke wrote:
Robert,
It is late where I am so, I will finish this post tomorrow, in the mean time I want you to look in the mirror, if you look real hard you will see you are wearing a conventional hat tommorow I will ask you to remove that hat and put one on that I am going to tell you about.
John $Cash$ Locke
[quote]
On 2004-06-23 23:47, jeff12002 wrote:
Maybe they have so little equity that they would have to pay at settlement to sell conventionally, /quote]
Jeff,
Now that part makes sense.
Thanks,
Robert
Not necessarily...if your auction date is only a few weeks away, do you think they have time for a traditional sell and go through escrow?
But you were looking for positives...here's one. Consider how much improved Joe Hardonhisluck's credit will be after I've made the last 6 months of his payments on time. Until he found me, he only had 90+ day lates on that account, but I help him get current and put those late payments months behind him. If he sold to someone who financed his loan closed, all he has is a closed account with the most recent history being late pays. Anyone interested in rebuilding their credit and ready for a fresh start would jump at the chance to avoid foreclosure and have a long-term installment debt show timely payments.
Risk:
Yep, it is found in both camps.
The investor - Seller files bankruptcy and you are not in a position to purchase the property early in the process.
The seller - Payments on the loan are not made yet the property is transfered out of their name.
Here is the middle ground - CREDIT outlok. There is a guarantee in this life. CREDIT will shape your future transactions. If the seller does not need the anchor of debt service released, their future is in jeapoardy.
Within this strategy protection is structured/limited and or weighted because both parties in the transaction accept a level of risk.
Good luck,
Eric & Rosa
[addsig]
Robert,
The reason I mention a conventional hat is because if you have never been in the postition to have to sell for a variety of reasons then you will always be thinking "leave the loan in my name, are you nuts?", because conventional thinking dictates this would be the answer.
The creative hat says, if you leave the loan in your name - you can take that transfer with the pay increase immediately - stop making double house payments which are a burden - you are getting divorced and it took two incomes to make the payments and your spouse already left - when you see the Sheriff at the door - you can save my credit because I worked hard to keep it up until now -
The above are only a small number of reasons people looking for help are more than willing to hand you the deed.
Now comes the part of why would they choose you. When you think about all those you have ever come in contact with, what is the one thing that caused you to do business with them?
"If people like you they'll listen to you, but if they trust you they will do business with you."
The house seller always calls me and when I meet with them I build that trust within the first 10 minutes of sitting down with them, then it is a matter of whether I want the house or not it is not their decision it is mine.
Really a very simple process.
John $Cash$ Locke
[addsig]
Thanks to all who've responded.
It still seems to me, that the only seller who would be interested in this, is one who is deparate and highly motivated. I understand the need to find motivated sellers, that's helpful whether it is sub2 or not.
Are there any times when someone who is not in the desparate situation of foreclosure, divorce etc where the average seller would want to get involved in a sub2?
Thanks,
Robert
[addsig]
Robert,
You question would be better asked what sustains the creative side of real estate investing vs the conventional side, let's look at what this is.
Short Sales
Pre-Forclosures
Subject To
Lease/Options
Wholesaling
To name a few, this is the make up of some of the creative investing methods and motivation plays an important role.
If you are a conventional investor then your methodology is entirely different, you have excellent credit, a line of credit, a large amount of cash, then you look for deals where cash or credit plays a major role.
I can assure you that even when I say, "Subject To that's what I do" is not all I do. At present I am working on a commercial property $18M deal which is not a Subject To deal. However some great deals have come my way, but the basics of my marketing efforts brought these deals in albeit creative or conventional.
John $Cash$ Locke
John,
I think I understand what you are saying. That the sub2 (and other methods) are tools for the creative side, whereas the conventional side has different tools. Ist that what you are saying?
I'm just trying to categorize the tools with the types of deals I come across.
Thank you. I'm also just curious about these issues. I've had a couple of friends go through difficult financial times during the past year and needed to know what some of the initial pros and cons were. I want to stay friends with these people, and truly help them, not just get their houses.
I'm just trying to determine if this is the kind of offer I could comfortably make. There are things that one person might feel comfortable with that I would not and vice versa. Not a personal judgement, just different views on life and slightly differing value systems.
At any rate, I'm just trying to get a better understanding of sub2 and what motivates the seller to want to participate in this kind of deal.
Thanks for your patience and helpful explanation. Your experience and insight is greatly appreciated.
Robert
Robert,
Yes, there are many sides to investing this is what I am saying or in a nutshell different strokes for different folks.
However this does not mean that sooner or later you cannot switch hats depending on the deal.
Your question about your friends, my policy is if they are friends of mine then I help them and ask for nothing. If I have the ability to solve their problem I don't want their houses, I want them to make the money. This I believe is what friendship is all about.
I think Mark commercialking said something in a post today about being a deal junkie, it really isn't about the money it is about the "chase" for me, because I have learned the money follows the chase or the deal, but always in my mind is finding the deal and completing the deal, I never look at the money side because I know it will be there.
Some people get to dead set about making the money they forget what is important about making it and put the cart before the horse so to speak. The reason I mention this is the chase is for my friends if that is what is needed.
When it comes to friends however no amount of money is worth their friendship and besides if they know you made money off there situation they will no longer be friends. In your case if you can help them and even if all else fails you can feel good that you did what you could.
John $Cash$ Locke[ Edited by JohnLocke on Date 06/24/2004 ]
John,
Thanks.
Robert
I'm continuing to think through this method and have some more questions.
So, what exit capabilities does the buyer have?
Can I sell the house, since I really don't own it yet?
Do you typically require the seller to move out?
If you wanted to liquify the property to move on, what can you to to get your cash out? Do you have to wait for the original owner to sell?
Thanks for the help.
Robert
It has been my experience that when sellers have no other alternatives they are willing sign over the deed, but If they have other options to sale you better believe sub2 will not be an avenue for them.
Here is the best advice you will get on the subject..
.......
Go to the tab at the bottom of John's reply and click on his products, buy the Sub To book and then you will know what he knows and if you have specific questions he will answer them for you via cell or email
[addsig]
Robert,
When you do sub-to you must have an exit plan in place before you buy. As John has said many many times you make your money when you buy not when you sell. Don't fool yourself if the deal is a pig don't think you can put some lipstick on it and sell it.
Don't get me wrong we all have made mistakes but it is what we learn from those mistakes that make us better investors. Just remember all it takes is one bad apple to give us all a bad name. Always be honest and people will trust you and sell to you.
I sell my homes on a contract for deed. I never let the sellers stay but it is for legal reasons in Minnesota. I like contact for deed but again it is a personal choice.
Lastly look into John's books it can help.
James
Stockpro,
You miss my point. I'm trying to find out if I'm even willing to consider the sub2 as one of the tools I'd be willing to use in a deal. If I want the explicit details and I want to use this methodology, I don't mind paying for John's courses. But I'm just trying to understand the basics to determine my comfort level with the types of risks associated with this type of deal.
Thanks,
Robert
So, what exit capabilities does the buyer have?
By buyer, I'm assuming that you mean you, the investor, correct?
Can I sell the house, since I really don't own it yet?
Yes, you can sell the house because you really do own it. You are taking deed/title to the property "subject to" the existing mortgage. A new deed will be recorded with you as the new owner.
Do you typically require the seller to move out?
Yep, always. No exceptions. They are sellers. Sellers move, they don't stay.
If you wanted to liquify the property to move on, what can you to to get your cash out? Do you have to wait for the original owner to sell?
As stated, the original owner has already sold the property to you, so you are the owner, period. If you want cash out of the property, the two main methods would be to sell it outright to an end buyer or simply refinance the property into a new loan.
And to answer another question that you had; in every subject to contract that I've seen, it is written that you (the buyer) agrees to take the property subject to the existing mortgage and that you, the buyer, agree to make the mortgage payment. If you fail to make those payments, yes, the seller's credit would be ruined, but the seller will likely be suing you for damages (and will win), so your pocketbook will be hurting. In short, the seller does have grounds if they need it.
Roger
Roger,
Thanks! That answered my questions perfectly. I appreciate your taking the time to read through my post and answer the specific questions I asked.
Now I feel that I have a much better understanding of the process and risks involved.
Thanks again!
Robert
One last situation to consider (though it was mentioned earlier but not explained). Imagine an owner has a house with no equity and they need to move (job change, health issue). They bought it recently and didn't put much down. They can't afford 2 mortgages, but can't stay so they need to sell.
They call a realtor who says it will cost them 6% commission, plus closing costs to list and sell their house. Their choices are:
- list it for FMV+10% to cover the commission and closing. Result: it sits on the market and they are stuck.
- List it for FMV, sell for 5% less, and pay the commission and closing out of their own pocket. Result: their out lots of cash (5% of FMV, 6% of sales price, and CC). On a $100K house, that's about $12K.
- They call you, you offer to give them $1000 moving money, and you get the title to the house, promising to pay their mortgage. Result: They get to move with no old payment hanging over the heads. You saved them and let them get on with their life. They can show a new mortgage company that they sold their house so they can qualify for a new house.
You get to use their 5% mortgage, then either rent it, L/O, sell the house on a CFD, or sell it conventionally to a new buyer.
Not everyone that is motivated is near BK and not everyone near BK is motivated. The key is to talk to them and see. Good luck.
Peter
Peter,
Thanks. That also makes sense. I understand the reasons a seller might be motivated to sell this way, but it just seems like the seller is also taking a *big* risk in depending on the investor paying their mortgage on time. I'm just trying to find out all of the risks involved for both sides.
Thanks again.
Robert
[addsig]
Quote:
On 2004-06-24 21:05, JohnLocke wrote:
Robert,
Yes, there are many sides to investing this is what I am saying or in a nutshell different strokes for different folks.
However this does not mean that sooner or later you cannot switch hats depending on the deal.
Your question about your friends, my policy is if they are friends of mine then I help them and ask for nothing. If I have the ability to solve their problem I don't want their houses, I want them to make the money. This I believe is what friendship is all about.
I think Mark commercialking said something in a post today about being a deal junkie, it really isn't about the money it is about the "chase" for me, because I have learned the money follows the chase or the deal, but always in my mind is finding the deal and completing the deal, I never look at the money side because I know it will be there.
Some people get to dead set about making the money they forget what is important about making it and put the cart before the horse so to speak. The reason I mention this is the chase is for my friends if that is what is needed.
When it comes to friends however no amount of money is worth their friendship and besides if they know you made money off there situation they will no longer be friends. In your case if you can help them and even if all else fails you can feel good that you did what you could.
John $Cash$ Locke
<font size=-1>[ Edited by JohnLocke on Date 06/24/2004 ]</font>
John,
I do appreciate your comment to Robert, re. "friends". It is nice to know that there are others out there that think like I.
I've had a number of businesses over the years, and been unfairly treated by some of my "so called" friends, and even a few relatives - all for the "almighty dollar".
Thanks again,
David
woodsrim,
David, glad to meet you.
One other thing I have always done when a relative or friend needs money, I give them the money you noticed I said give them, not loan them.
My idea on this is I do not expect the money to be paid back, therefore I am never disappointed. Another factor is if they do pay me back they know I am good for more, if they don't pay me back they know never to ask again, I don't say this, however they just know.
I reminds me of if you want to get rid of someone who is bothering you, loan them money, they will do everything to make sure they do not run into you again, $20 bucks works. LOL
John $Cash$ Locke
Quote:
On 2004-06-29 13:31, JohnLocke wrote:
woodsrim,
David, glad to meet you.
One other thing I have always done when a relative or friend needs money, I give them the money you noticed I said give them, not loan them.
My idea on this is I do not expect the money to be paid back, therefore I am never disappointed. Another factor is if they do pay me back they know I am good for more, if they don't pay me back they know never to ask again, I don't say this, however they just know.
I reminds me of if you want to get rid of someone who is bothering you, loan them money, they will do everything to make sure they do not run into you again, $20 bucks works. LOL
John $Cash$ Locke
Great advice as always John.
Robert
[addsig]
Robert,
We advertise as "The Simple Way To Sell Your House". We get deals from Motivated to those who want to move and don't want to list. We recieve alot of calls from those who will be building a new house and want a to go on and get peace of mind. My parents thought it would not work after a year they invest some$ and bought in for a partnership. It just depends on house you think and if you believe in what you do. If you don't believe it will work it won't. Change your thoughts and the rest will follow.
Best to you
Sire