Suggestions And Opinions Please.
Sub2 will ultimately be our "bread and butter" (my wife and I). Currently we are in the process of securing a few fix and sell deals to put a little extra money in the bank to help fund our potential Sub2 deals. Most of my knowledge of the subject comes form reading various articles and threads on different web sites. I have comprised an outline to help benefit my understanding of the process and wanted to get some of the pros suggestions and opinions to make sure we're headed in the right direction.
1. ASSESSMENT
a. Do property search to roughly
determine FMV, last selling price,
appreciation rate and comparables.
b. Do title search for any liens.
c. "Release of Information" to check
sellers mortgage balance and
delinquent payments.
d. Run the numbers: FMV-mortgage
balance-repairs-fees-insurance-
liens=PROFIT. This will also
determine our exit strategy.
2. OFFER
a. The numbers will determine how
much cash money we put in the
sellers pocket.
b. Assume existing mortgage (that's
a given :-o )
c. Repairs, maintenance, fees,
insurance, etc. to be paid by us.
d. Of course inform the seller that the
mortgage will remain in their
name and that they receive all
the "credit" for making on time
payments each month.
3. PAPERWORK
a. Seller signs 2nd mortgage from us
to include back payments, repairs,
fees, insurance and any liens paid.
This 2nd mortgage will be satisfied
when the intial 1st mortgage is
satisfied. Bascially when we sell
the house.
b. Land Trust Deed
c. POA regarding the property
d. have the seller add my business
to their existing insurance policy.
Where? I'm not quite sure yet.
e. Change of address for the seller
so all bank correspondence
comes to us
Our exit strategy will be determined when we run our numbers. If there's little equity most likely we'd be looking to do a low qualifing seller finance with a balloon payment in 2 years. This would be determined by the apprecaition rate in that area.
So does it sound like we're heading in the direction? Anything else we need add? OR am I simply smacking them way off in left field somewhere?
Two points...
If you are already doing fix and sell deals to raise cash you are working backwards. For Sub-2 deals you do not need much (if any) cash. The assumption is for each deal you pull out at least what you have put in or more so all you have to do is manage the cash flow (the money paid to buy vs. the money received when you sell on some sort of contract). If you stick to deals that are not behind in your payments then the cash flow is much easier to deal with (but harder to find such deals).
I would suggest a minor investment in terms of cash is to buy John Locke's course on Subject-to deals. You will learn a lot, save some money on each deal most likely and be more confident that you have the full picture. As you have cash to fix and sell some deals you certainly have the cash to buy the course and then get started.
John
PS. If you like fix and sell deals and want to continue that is fine. Such deals have no direct connection to how and when you start Sub-2 investing.
[addsig]
Thank you John for your response. I guess I am being overly cautious in that I want enough cash on hand and in reserve to make solid win win deals and to carry notes if we had too. Again, as I mentioned a lot of what I'm gathering is from posts and articles. I've read a couple of post referring to the Sub2 course so I will definately invest in this.