Subject To W/ No Money Down??
Hey guys,
Im going to try and hit the subject to market for FSBOs. My question, is it possible to structure a subject to with no money down, if so, how would I do so? Also, im assuming with this method, traditional buyers are the best bet, so do you normally list with a agent? So many ?'s, this is just a start
Quote:
My question, is it possible to structure a subject to with no money down, if so, how would I do so?
Yes no money down is very possible. Structure the deal... Just show the seller how there is no equity in there house.
Best to you
Sire
Well, if there is no equity in the house, why would I want it? I need equity to make money, no?
[addsig]
Birddog1,
Have you been reading any of the posts on this topic, or have you just been a posting machine elsewhere on this site?
There have been several posts that have explained how to talk down the equity in a house, and how to make money with low equity properties. Over time, structuring your sale using CFD or Wraps, and getting purchase money deposits, and positive monthly cash flow until your buyers can refinance, and then capitalizing on some of the appreciation when you do sell.
If high equity, no money down, flips were the norm, then everyone that ever invested in a creative real estate package would be rich, not just a small percentage of them. If you stick with it you may find some like that, but there will be more done as low equity deals.
Good luck,
Jeff
Read, Read, Read!
Do you mean to say that you would want to take a house that has no equity using the sub2 method?!?!?!
WHAT A SHOCKING CONCEPT!
HOW CAN I EVER ACCOMPLISH THAT?
there's a way to everything,if the seller needs to sell he will sell.Patience is the key, when a seller says NO that means he will think about it , leave him your bussiness card and move to the next one.
Sorry bout the sarcasm there. Apparently laying it on pretty thick didn't help.
My point - which was entirely missed - was that when people don't have equity in a home sub2 is the way to go. At least it's the first method that comes to my mind in that situation.
Ryan J. Schnabel
[ Edited by rjs9352 on Date 03/30/2004 ]
well, theres no numbers that i can go by.
But lets assume that the asking price
is100k he's equity is15k .I would offer 105k, with owner finance 20k.But make sure you do some comps,don't want to end upside down. Keep in mind the seller "needs"depending how much equity there is ,thats where you would adjust.
An agent is definetly going to charge you commision
This was already touched on, but just to put it in plain english. Not having any equity and showing no equity on paper are two different things.
Lets say there is a 200K property with 30 K equity. You as the buyer could say, ok, but I'll need to pay 6% comission (12K), you'll need 5K in holding costs, 3K in closing costs, and 8K in back payments and repairs. That leaves 2K - good Uhaul money.
Now you may only incurr 3K in holding costs, be able to sell it yourself and end up paying 7K in repairs and arrears and make more then planned but you're not a fortune teller and need to make sure you are covered reasonably well.
Instead of offering them 2K cash you could always offer to rent them a moving truck, pay other moving costs that you could drop on a credit card. That way you're "borrowing" that money as well and effectively have a zero down deal.
Steeler:
Correct me if I'm wrong..but the above deal( owner carrying back equity) is a taxable event to the seller. Even though he is not recieving any cash..he is holding a note. His equity was sold in full and he will be taxed at the full amount. So I believe in this case...u-haul money will not be enough.
[addsig]
Steeler,
Leave where you are and move to LaLa land you will fit right in.
Until Container time I did many such transactions and some so tight that there was no possibility of any profit at all. In paper it all looked like a wash. As my charming wife put it."So vat are you doing? When are you going to stop this foolishness and work on something that brings money." Ah that good lady how well she thinks. Of course all in present time.
For some reason she could not see the increase in population, the shortage of applicable homes and lack of dwellings priced into the incomes of the population. But whose to teach? Of course the present spike in real estate values made me a hero to all my children who are now in ownership. They have taken to smoking Cuban Cigars and long vacations in the south of France. And that is just the girls!!
The Boys all go to Bangkok. something about checking the Asiatic Market. You believe that? One comes home and I ask him about all the pagodas and he says, "What are those!" Yeah right.
In a classic upward Spike such as now. You can do all the Sub2 or plaster with secondary paper set for future discount on any downmarket it is your call. Which way will it go? Will dear Alan bust the interest rate. Will the new legislation in Los Angeles throwing zoning into the waste pail be effective. Oh yes that is where you can build a secondary residence on any single family lot. Do you know what that does to Density. Changes the name to Fully Packed. But nevermind can we in TCI make money on that one? Legalized all those garages I converted into Guest Houses. Yip. Instead of being a violater of the building codes I am a forward thinking Humanitarian/Developer.
Oh yes we have another one in the works the requirement on all multi-residential or mixed use construction the arbitrary assignment of a percentage of dwellings to Low Income Housing.
Do you think that will have an effect on existing multi-residential properties?
Do you think it will be possible to deal with the low income tenants and sublease on long term basis and convert those units into splits or lofts or commercial or double ups etc. etc.???
My god lots of new opportunities coming along. What a wonderful time to be active in the field of Real Estate Investments. The Governments are working for us. What a nice change. However I shall still stay a member of the Green Peace Party. Never had a green piece. Interesting.
Cheers Lucius 8-) 8-)
There are so many opinions in this post that I am having a hard time figuring out which is reality. I think I will stick to the basics on subject to's and listen to the master John $CASH$ Locke!
Actually Tom,
This is a pretty simple concept and used in many methods of investing, including Subto.
As stated above, there is real equity and then there is paper equity. For negotiating, the paper equity is the most important. It's fairly easy to eat up 20-25% of equity from FMV simply by laying out the cost involved in a conventional sale: agent fees, holding costs, closing costs, repair costs, etc. As an investor closing quickly, you can even try to add in such factors as a "profit discount" or quick closing discount, etc.
If you're buying property to resell, then as a creative investor you should have your selling method to where you can sell for more than current FMV, thus increasing your profit margin. The most common way to do this is to sell on "owner terms" either thru a L/O or some form of owner financing. This way, you can market a higher than FMV price because the buyers really won't be "cashing you out" until later, when the FMV should be higher.
If you want to sell more conventionally, like an outright sell, either thru yourself or an agent, you'll first probably have to find better deals because you'll have more fees involved with selling, BUT you can still market for more than FMV (though not as much) simply by offering 100% financing (hold a 2nd), no closing costs, home warranty, etc.
As far as buying with "no money down" it really depends on what you consider no money down. If you really intend to not give the sellers any money, then you'll have a very hard time finding sellers interested in your plan. But as stated above, you can always find some money ($2-5K or so) that you can give the sellers that you borrowed from somewhere else. As long as you did not pull money out of your own pocket to close the deal, then it was a no money down deal.
Littlefoo,
The sell of the property may or may not be a taxable event for the seller. It all depends on the length of time the property was owned as an owner occuppied property. If the seller has owned and lived there for at least 2 years, then it is not a taxable event.
If they have not, then it is going to be a taxable event whether you or someone else buys the property. With your discount offer the tax would actually be less.
Not sure where the note holding can in, but if the seller in this case held a note, it would likely viewed as an installment sale and only the monthly payments would be taxable when received. Either way, this is a question that the seller would need to talk over with their tax advisor. You job, as an investor, is to make the best deal possible for the situation. I'm pretty sure that, depending on the selling reason, that the last thing on the seller's mind is taxes.
Roger
rajwarrior,
So what you are saying is that you make it look like there isn't any equity on paper saying you are going to have to pay for this and this and so on. That way you are paying the least possible for the property. Then when you sell you use a lease/option or what ever to say that when the buyer actually pays for the property, say 2 years later, the property will be worth (FMV+3%+3%=FMV @ time of purchase)!
Maybe I was just exhausted last night and couldn't make anything out of the many words above, LOL!
Best wishes
Tom Stewart
[addsig]
Tom:
You were right about the first half (deducting from the "paper" equity) to get the property for the least amount.
If you follow John Locke's method, when selling, you increase the FMV of the house by the appreciation values of your area X the number of years before refinance, plus the downpayment amount.
Example: In my area, houses are going up about 7.5%/year.
Current FMV 100K, sell today on 2 year contract for deed at $115,000 (7.5% appreciation x 2 years) + 10K down=sale price of $125K.
Your profit will be in the 10K down + 15K apppreciation + any extra you add to the monthly payment.
Andy
Andy,
1 correction, you get 100K + 2 years appreciation. The downpayment is just that, a downpayment. So in your example 115K is the purchase price, 10K is the downpayment, the balance due is 105K. The total purchase price is still 115K.
Sam
Soe basically you are making 115K minus any money you put into it, IE: closing cost, title fees, ect., other than your down payment, which you get back when you sell?
Thanks in advance
Tom Stewart
[addsig]
UHHHHHHHHHHHHHHHHHGGGGG! i get so tired of people prattling on. can we just get to the original post? debating is for pming. yes it's possible to do a sub to no money down. but the ways to do it are numerous. so we'll need some more specifics on what you want to do.