"Subject To" With High Equity
Seller is willing to sell. Ok. He is in a pre-forclosure process. He owns $110K. Market value is around $175K (i'm positive about that). He knows that he can sell fast at $170K ( i agree!).
How can i buy that kind of property "subject to" with little money?
This depends mostly on your seller and their immediate needs.
1 How much cash do they need right now?
2 How much would they be willing to leave in the property in the form of owner financing?
3) What terms could they extend on that owner financing?
4) Would they be willing to discount a portion of their equity? How much?
The proper way to answer yur question is to set down with the seller, and discuss their needs. Then identify which of the needs that they've listed are needs, and which are wants, and then negotiate the terms and price of the property.
You should know what the maximum you are willing to pay is before you start negotiating, and stick with that.
If the property is going into foreclosure, they don't have time to wait around for it to sell the conventional way. 170K isn't much of a discount off of 175K, and if they list the property, they'll net less than that after commissions and closing costs, probably less than 40K once the existing loan, late fees and penalties are taken care of.
It'll take time for the new buyers to arrange their financing etc.
Your negotiating tool is that you can make the problems go away almost immediately.
Good luck,
Jeff
Hi Jeff,
I''m recently learning about subject to's and I really like the concept.
Now when you suggested to Codythebest the questions below...I too was actually wondering my self about the equity and how would one determine a fair discount amount to give to the owner for their equity. Is there a certain % you use to come to this amount...If so, could you share it with us newbies? So in this case of assuming the equity is 40K, what portion of this would you give to the homeowner...And, how do we guarantee we will receive this portion at closing, especially if we are going to assign this over to an investor?... hypothetically speaking.
Thanks...
JB
This depends mostly on your seller and their immediate needs.
1 How much cash do they need right now?
2 How much would they be willing to leave in the property in the form of owner financing?
3) What terms could they extend on that owner financing?
4) Would they be willing to discount a portion of their equity? How much?
If the property is going into foreclosure, they don't have time to wait around for it to sell the conventional way. 170K isn't much of a discount off of 175K, and if they list the property, they'll net less than that after commissions and closing costs, probably less than 40K once the existing loan, late fees and penalties are taken care of.
It'll take time for the new buyers to arrange their financing etc.
Your negotiating tool is that you can make the problems go away almost immediately.
Good luck,
Jeff
When I came up with 40K, It wasn't completely PFA (Pluck from air), but it was really just an estimate.
I figgured roughly 10K for real estate commissions,
2.5K-4K in closing costs
??? for negotiated discounts from 170K asking price
minus the loan balance with anywhere from 2K to 5K in arrears, penalties etc.
40K was just an estimate of what the seller could potentially walk away from a conventional sale with.
If you consider that a sale of the property could take anywhere from 2 weeks for a pre-qualified buyer with connections to 120 days for someone that thought they were just looking and fell in love with the property, it could be anywhere from 1 to 4 months for this property to close if it sells fast the conventional way. The longer it takes, the more the late fees, penalties and arears will add up, resulting in a less attractive investment.
There are two things that affect the attractiveness of a deal with me, (Besides helping both the seller get rid of a problem, and helping my buyer get a home they otherwise might not get), that's either the spread (the difference between what it's worth, and what I can sell it for), and the terms that I can purchase with and possibly pass on to my buyers.
The more cash I have to come up with, the deeper the discount. The better the terms, the more I can afford to pay.
I'm still learning the whole concept of time value of money, so I won't even try to impress you with formulas, but I understand that a deal like this one is more attractive if the owner is willing to take 5K now, and give me a 35K second with great terms that I can pass on to my buyer, than having to come up with 35K right away.
I would reasonably expect this to work somewhere in the middle.
I hope this helps, (I'm just as confused now as I was before this post.)
Jeff
The problem is properties sold very fast in here. And to answer your questions Jeff :
1) the higher the better
2) no owner financing, somebody else could give equity in cash (i agree)
3) =2)
4) At least 40K
At $170K, he can sell in less than a week now since another property just sold for $180K yesterday in the same gated community. All similar townhouses.
A lot of properties get high equity because real estate here increase at an average of 18% a year since 1999-2000...
My own 3/2 home, bought in 02/2001 for $160K, just get a quick oral offer from a knocking door guy at $255K...and it is not for sale!!! And my guess is if he offers $255K, he is probably willing to go higher...So we get high equity for now in this area ( all south florida indeed)
So bottom line, how can i deal with high equity properties facing foreclosure?
Have you pre-qualified them as sellers?
It sounds like they feel they're pretty secure in believing they wont lose their house because they know they can sell.
If they can sell so easily, what is their motivation to do a sub2 deal? What's your angle? Most of the time sub2 requires someone that's anxious about their situation. It sounds like these people have lots of options. Obviously if they can cash out next week, they won't want to carry any financing which leaves you in a position of needing to come up with cash or financing for the difference between what they owe, and what you can negotiate as a sale price. If they agree to let you take the property and leave the existing financing in place. Do you know anyone with that kind of cash that would cut you a short term loan?
Codythebest,
I would venture a guess that that this will not happen sub2 with little or no money down. (In answer to your original question)
Sorry,
Jeff
Jeff,
It is not THEIR motivation to do sub2deal...it was mine
However, more i think about it, less it looks good to do sub2deal...
Indeed, i feel that if there is a high equity in a property, there's no way to make it a "good" deal out of it....
Bottom line..the question is how motivated/anxious are the Sellers to sell?
Maybe I missed the point...But, could you guys explain why you would not do a sub2 with this deal?
Thans.
I don't think people are telling you not to do a subj2 deal. It is just unlikely that a subj2 deal would come together.
There are always going to be folks out there that have equity in their homes. The trick (and where you will make your money) is finding sellers who are motivated to sell their homes (divorce, bought another home and doesn't want 2 house payments, job transfer etc.)
It is going to take more than just finding someone who has equity. Your job is to fix their problems.
If the homeowner can sell their home in a relatively short amount of time and get full cash, they don't have a problem.
But you have got into the mix. And that is a good thing. Keep at it and you will make deals and you will be surprised at how many you can do with little or no down out of your pocket.
Hope that helps.
John
Quote:
On 2003-12-13 19:24, GA_John wrote:
It is going to take more than just finding someone who has equity. Your job is to fix their problems.
If the homeowner can sell their home in a relatively short amount of time and get full cash, they don't have a problem.
Bingo. John gets my thought.
We have to be problems solvers.
If no problem, no deal...let keep moving.
There is no problem here.
If he's behind in payments, how can he sell fast at 3% less than market value? If he's behind, then he can't afford to wait around for market value. 1st of all, most sellers don't realize that market value always includes a realtors commission of about 7%, so if he's going to sell to an investor, you can take off 7% right off the top. Then you can take off the arrears, then you can take off 3% for negotiation downwards, then take off 3% for closing costs. Then take off minimum of $15k for your profits. That leaves him with around $132k. Then since you're having to pay his back payments, then I woulnd't give him anything in cash. tell him he has to take back a 2nd for that equity. if he really values his equity that much, then he shouldn't have stopped paying the mortgage payments.
Too late chriseaker, he put a for sale by owner sign in his front yard. And 6 people (he said) made an offer. I just saw the best one at $179,500 no contengencies...So it is sold...you know...i'm in south Florida...when a property is within market value,it's sold instantly...
Was the deal all cash? I doubt it if it's at retail. Keep watching the property. Since the deal is retail, it could still fall through, because the buyer is most likely doing conventional financing. It's happened on my block where the house said sold for 2 months and then the sold was removed. How are they gonna close quickly with conventional financing and appraiser? No contingencies? that seems odd too, sounds like the seller is lying.