Real Estate Agent Says Dont Do Subject To's!!!!
Hey gang...I have a good friend who is a REA for investors. He is very sharp and I value his opinion greatly. I am just getting started in the biz and always try to listen to those who are smarter than I. He and I were talking about a possible deal I have found that may be a subject to. He is pretty adamant about me not doing it. He suggests that I will be much better off using conventional financing or possibly doing a short sale. He really does not like the subject to deals even though his agrees they are a very hot item right now.
Here is what he basically says:
Number one they are illegal because of the DOS non-disclosure to the lender. He said I would be required to inform the lender of the purchase ultimately invoking the DOS most likely.
Number two, he says it is sometimes difficult to get a clear and marketable title, which ultimately leads to
Number three, that is sometimes EXTREMELY difficult to sell the property when I eventually decide to do so. Apparently he has recently had a real difficult time selling a property where he was the listing agent and the propery was ofiginally taken subject to.
Let me be clear that I am very interested in subjst to investing! I simply like hearing all pros and cons of any potential deal. I was somewhat taken back by his comments, as he is usually very helpful to me. I think there are many extremely intelligent people on this site, and I respect their opinion a great, great deal. Just wanted to get some feedback on a differing opinion, thats all.
Thanks in advance.
Suntzu18
1. First things first. Sub2 is not illegal. The DOS clause is part of a contract that protects the lender. If I sell you a car and in our contract we say that you are not allowed to wear an orange t-shirt in the car and you do you are not breaking the law, you are simply violating a contract. It would be stupid for me to do anything about the orange t-shirt when everything else is going well. Same with the lender. If they are getting paid and their interest is still secure with insurance and such, why call the note due?
2. The only way that you can get in trouble conveying a clear and marketable title is when you fail to do title work when you purchase the house. If you don't and then later do the work who knows what you could find on the title. Moral of the story---always do title work when buying!
3. I'm not sure what the realtor is talking about here. It is really a simple process to sell a house. The underlying mortgage that was taken sub2 is paid off and a release or satisfication of mortage is recorded. That basically wipes things clean. If you sell on some form of owner financing it is important to keep a record for the new mortgage company to show the payment schedule since they won't have info on a credit report to go by.
Buying sub2 is not without risk. The lender does have the right to call the note due so you may want to have some sort of a plan in place "just in case". I personally have never had a problem so I'll cross that bridge if it comes.
I'm not sure why this RE agent favors conventional financing so much. I don't know any people that I consider true investors that don't value creativity when putting a deal together.
You'll have many more people tell you that it cannot be done than people that support you. Don't let it get to you. Prove them wrong! GOOD LUCK
I love this guy!!!!! I needed a good laugh. I wish I could talk to him every day. I'm impressed that he's wrong on only 3 out of 3 points. He's wrong only 100%. That's a pretty good average. I'm hoping this guy gets on national television. Everyone listen this guy!!!!! Stop doing Subjet to's. I wish I'd have talked to this guy 30 years ago. I'd still be flipping burgers.
Last I checked there is no Due on Sale Jail.
suntzu18,
Glad to meet you.
A little story if you will and Sammy will like this one.
When I first started doing Subject To deals in Las Vegas, since I had so many properties for sale every week the real estate agents would call on my ads and started to recognize my phone number so they got to know who I was.
I would explain that I was the owner of the property and selling it my self, pretty soon it was how are you getting all those properties, why aren't you listing them, the real estate boiler rooms where contstantly calling me for a listing.
I took the time a few times to explain what I was doing and here are some of the replies from agents.
What you are doing is illegal.
You are going to prison for doing it the way you are.
I am reporting you to the Board of Realtors. (I always like this one, because I was never a member of the Board of Realtors and they police themselves not investors.)
You are taking food out of my baby's mouth, you dirty rotten (deleted) I hope you rot in (deleted). Serious on this one and it is one of the nicer ones.
What do you think a real estate person is going to say when you are taking a piece of the pie without them being involved?
If you correctly pursue Subject To investing or as a matter of fact any creative investing technique with the proper paperwork then you will not have anymore of a problem than any other business endeavor you pursue.
John $Cash$ Locke
Thanks for all the responses.
San...even if there was....I have a "get out of due on sale jail free" card..haha
I will not get discouraged, I simply wanted some feedback from the gurus...thanks for your help.
Thanks John Locke,
) explain “dynamics of the market” to them.
These are perfect examples!
I have heard few of those statements as well. It is very important to be confident about your rights and legality of your business if you want to sleep well. I do business in a pretty expensive neighborhood but guess what? There are still FSBO signs that I take subject 2 from time to time.
I don’t see Wall Street brokers threaten to kill every single day trader for making profit on their own instead of paying $325 for every trade they make and have a pretending fool (my apologies to all Realtors here,
Bottom line: Don’t get discouraged, go out there and try for your self.
Dmitry.
.......and this is why he is still a real estate AGENT.
[addsig]
With all due respect to your Real Estate Agent buddy, this is an example of what I call learning too much from a deal.
I first noticed this when I was working for condo boards. Condo boards love to make new rules (makes 'em feel useful). So somebody complains about something (the neighbor's dog took a crap in their front yard). The board now goes into rule making mode. 1) Dogs have to be kept on a leash 2) you must pick up your dogs crap. 3) no big dogs 4) big means more than 12 lbs. 5) You have to pick up your cats crap too. 6) Dogs can only crap in the designated areas 7)leashes cannot be more than 5 feet long.
Pretty soon the condo association has a book of rules about 3 inches thick when all that was really necessary was for someone to go to the guy who was being obnoxious about the dog shit and explain the situation to him and ask him not to let his dog crap in the neighbors yard. In a complex of 300 or 400 apartments you have one such jerk and the 3 inch high stack of rules won't stop him from being a jerk all it will do is make the rule book unmanageable. Nobody thinks about all the dog crap that gets disposed of properly they only think about the dog crap that was a problem.
So your REA buddy has seen one sub2 deal and it had problems. Does he think about why there were problems? No. Does he even examine whether the problems were related to the Sub2 part of the deal and how? No. He concluds, "Sub 2 deals have problems. No sub 2 deals. " A nice, simple rule. Only problem is that there are lots of sub2 deals that don't have any problems just like there are lots of condo dog owners who's dogs don't crap in the neighbors front yard. And there are occasions where the Sub2 is the perfect tool. Just like there are lots of condo owners who's dogs are really important and positive parts of their lives.
So, the mere presence of problems in a deal or in a transaction method does not make it bad or wrong or not to be used. It does mean you have to know what you are doing, understand the weaknesses of the system you are doing and pick up your own dogs crap.
Suntzu,
Ask your realtor buddy what line 203 in the HUD-1 is for and listen to him stammer away or say "it's never used in real estate. They just left it on the form for historical purposes." That's the last one I heard.
Keep doing what you're doing!
The reference to HUD< line 203----now THAT's A good one!!!
Lydia
I just finished up a 3 month long real estate class here for realtors in WA. (I wanted to learn the other side) The guy teaching was an EXTREMELY successful and knowledgeable licensed broker. He just taught for fun. Him and I became buddies when I told him I do sub to. He said when he was my age he “broke his teeth” on sub to. He then laughed and proceeded to tell me not to listen to realtors when they try and scare you out of doing sub 2’s.
I got a big kick out of that.
Gnovosel,
That is what I call a Bulls eye!!! Line 203 on a Standard HUD-1 and a realtor preaching of SUB-2 being illegal.
Perfect,
I need a good laugh!
Dmitry.
[ Edited by Dmitry on Date 04/12/2004 ]
Well now, having just waded through my first sub to purchase and sale, I can comment with experience. The learned masses in reply above pretty much have it nailed: realtors love to play the "sky is falling" card when they want to dis something that they a) dont understand b) dont profit from. Not saying realtors - in general or this guy in particular - are bad, just sometimes uninformed. It wont stop there either. Wait until you get to the title company when the buyer of your subto purchase refinances. I had a woman at the title company (that my buyer insisted on using) tell me that the Land Contract was a lease agreement and that the buyer had been paying me rent ("No no no:I am the bank, they are paying me principle and interest according to this statement right here...yeah, that one...uh huh...the one that says 'Monthly principle and interest shall be $X'"
I will admit that you need to better informed than the average bear to do creative investing, sub to is no different in that regard. You literally have to stand up to these "professionals" and tell them that 'this is what we are going to do." Takes some learning...but then this is why we have TCI, so we can get learnt better, right Joel?
Molotov :-D
John Locke has a great point.
Anytime you are looking at a deal you should consider the motivation of the person speaking. AN REA works on COMMISSION. Imagine that. You cut them out of the deal and they lose money. Now I think they have their place but their advice is always skewed. So help them change their perspective.
My agent was blown away when I taught him how to look for these deals. For a few minutes worth of work he gets to make $3k. Now dangle that little carot in front of a flexible agent willing to work for you and "on your team". Then go wrap a bunch of these and live the good life.
Cheers
Being a Former Marine Corps recruiter (don't shoot me) I know what sales people think and say when they are not getting what they want. First they try the redirection technique if they are good, then they go for the scare technique. then on to the change of subject technique, and on and on until you finally submit to what they want. Thats what they are trying to do. Control the sale! Don't listen to this guy. First of all he is trying to sell you and you are his friend, just guessing that you are more than just acquaintances. Second of all he is a salesman. Don't get me wrong. You should always trust a salesman.......to stretch the truth or sometimes lie to get what they want.
Best wishes,
Tom Stewart