Seliing A Purchase Contract. Weird..
Okay, I have been reading a lot about aquiring properties Sub-To and i think i know everything i need to know to try and do a deal. I ask a question to another investor that goes a little something like this " If i aquire a prop. sub-to and then want to sell it and make my prof after a couple of weeks will there be a seasoning prob. and also will the new lender find out that i got the prop sub-to because when they consult with the old lender they will see that I (LLC, Trust) dont have a loan out through them?" This may seem a little confusing to those reading. if so just say so and i will try harder. Now after i say this to the investor they say " Why would you even keep it that long? Just sell the contract. I know what they mean but now i feel like i am totally lost and it may have just confused me more. I think what they are saying is to sign a agreement with the seller that you will Buy for x amount and then find a buyer and sign a contract for z amount and then they set up a closing and i get the dif. i understand that. i just dont see how im going to show somebody elses house while they are living there and also im afraid that the seller will just try and steal my buyer from me so they can make the prof. because they are going to be upset when they hear how much im going to make. This post may get deleted because its so long but any help would be very appreciated. Thanks everybody for your time, Ryan
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On 2004-06-17 12:11, jumperdk1 wrote:
This may seem a little confusing to those reading. if so just say so and i will try harder.
It is a little confusing but I think I can help a little bit here... Keep reading...
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Now after i say this to the investor they say " Why would you even keep it that long? Just sell the contract. I know what they mean but now i feel like i am totally lost and it may have just confused me more. I think what they are saying is to sign a agreement with the seller that you will Buy for x amount and then find a buyer and sign a contract for z amount and then they set up a closing and i get the dif. i understand that.
This is correct - the investor you were talking to has a valid point. Why would you actually take this property subject to?? A lot of people will actually take a property sub to and then lease option it out and make more money on it... BUT if you are looking for a short term solution, you get the property under contract for X amount of dollars... Then you find a buyer who has an "appropriate" amount of cash for the contract... At this point, you don't have the house yet - your name isn't on the deed (nor will it ever be), so there would be no seasoning issue... The buyers purchase the CONTRACT from you and that contract gives them the right to take the property subject to - understand?
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i just dont see how im going to show somebody elses house while they are living there and also im afraid that the seller will just try and steal my buyer from me so they can make the prof. because they are going to be upset when they hear how much im going to make.
You can show the house while you have it under contract because they will give you the right to access the house for necessary inspeciton, etc! The buyers cannot steal the house from underneath you because you will already have the contract on it to buy the house...
Did this help at all??
Hope so...
GOOD LUCK!
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Matty Kling[ Edited by mattfish11 on Date 06/17/2004 ]
yes, thank you so much i pretty much understand this now. okay so, your new buyer pays you cash for the contract right? then do they also have to be knowledgable about sub-to deals or will they buy conventionally? so what im asking is, do they just set up a closing and just pay off the first sellers loan and start a new one like you would buying conventionally and not take it sub-to? [ Edited by jumperdk1 on Date 06/17/2004 ]
so how much should you sell the contract for? the amount of equity that is in the house? and wont the new buyer know how much your making. say the house is worth 70,000 and you sign it up for 40,000 which is how much is left on the existing loan. do you then sell the contract to the new buy for 30,000. i dont get it, the new buyer will be pissed once they know how much your making, wont they.
When you sell the contract, you sell it for a few thousand dollars. I don't know if there are averages, but it seems to me that $2k-$5k is reasonable, depending on the value of the house, the ARV, the purchase price, etc. Keep in mind the new buyer has ot be able to make money on it as well, after they repair or whatever the ohuse needs.
John
I think jumperdk is talking about selling the house to a conventional buyer. in that case would you still discount the contract that heavily, if theirs alot of equity in the house it would seem stupid to sell it for a few grand to a conventional buyer. would it not?
Can anyone recommend banks that lend in New York and New Jersey that will allow your buyers to get a mortgage when they are purchasing your contract?
If you sell your contract to another investor, you would not be purchasing the property. You would be get it under contract for an agreed to amount (the amount owed on the seller's mortgage), then assign your contract to the new investor for a wholesale fee. If the new investor wants to use Sub2, that may make it more attractive and worth a little higher fee for you, but $2-5K is normal for an assignment fee.
If you are selling to your own retail buyer, then you will buy it Sub2, which means you will close with the seller, get their deed, and they move out. You do not want to try to explain to a retail buyer about Sub2. They'll think it's a scam. They want to get a new mortgage with their name on it. To them, that is home ownership. When you close with the buyer, the seller's mortgage gets paid off and you get the difference between that payoff and what you sell it for. However, there may be seasoning issues with your buyer's mortgage company if you can't show you did something to make it worth more. If you can guide your buyer through your own mortgage company/broker, they can help overcome this.
If you can close both the purchase and sale on the same day, you can do a double closing and may be able to have the deed held in escrow by your atty until the buyer closes. That way, you don't get in the chain of title, and there is no seasoning issue, but you have to control everything.
The other method of selling Sub2 is what you usually hear about , using either a L/O or on a Contract for Deed. With these, you use the seller's mortgage for a couple year's until your buyer refi's and cashes you out.
Sorry for the long post, hope it helps. Good luck
Peter
thank you so much you guys are great. So just to make sure this is really clear, all i would have to do to insure that the new buyer can get financing is say, paint the house, new floors and paint inside, blah blah. do a small rehab so there wont be seasoning. but i'm still wondering if the new lender will be able to tell that i aquired the prop. sub-to? I guess im a little confused about the exact process of the money. can somebosy explain how its transfered from one lender to the other? does the title co. do this and then sned the dif. to the closing? knowing the process would clear it all up. thanks you so much for all of your help. Ryan