Top 10 Buyer/Seller "Subject To" Pros And Cons!
My Question To Experienced Investors; Based on your successes and "should have's" what are the Top 10 Pros and Cons for Buyers and Sellers concerning "subject to " deals?
Lastly, can you share ways you've successfully minimized the threat of the DOS Clause?
Top 10'
I only have a few:...thats all I need.
1. I don't have to qualify for the mortgage
2. I can BUY more houses
3. I can BUY more houses
4. Did I say that again.
Cons;
1. Some sellers are not open to the idea.
2.
Some of the advantages & disadvantages as I see them.
Advantages..............
1. No Banks Needed
2. Low / No Closing Costs
3. Fast Closing Time
4. Doesn’t show up on your Credit Report
5. Good Credit not Needed
6. Low Homeowner Interest Rates
7. Owning the Property with Long Term Financing means Your Exit Possibilities are Endless
Disadvantages............
1. You Make a Bad Deal
2. Tenant / Buyer Doesn’t Pay or Trashes the Property
3. Due On Sale
4. Interference From Sellers After the Fact
_________________
William Tingle
WilliamGA[ Edited by WilliamGA on Date 11/29/2003 ]
WilliamGA,
What type of Seller Interference do you encounter?[ Edited by CanUBelieve on Date 11/29/2003 ]
I have never experienced this but know investors who have. Almost without exception, the sellers who caused problems showed signs of this possibility from the beginning. For example, maybe they really wanted to keep the house or felt they were being squeezed by an investor who had to talk them into the sale. Or they were holding notes to receive some of their former equity from the investor in the future and, once relieved of the pressure of their problems, felt that the investor had somehow taken advantage of them.
My first piece of advice on avoiding these sellers is to only deal with truly motivated sellers who absolutely must sell. Don’t even deal with sellers who require you to explain to them why they should sell their house to you. They will regret the sale later. On the contrary, sellers should be explaining to you why YOU should buy their house.
Second, try to make your transactions as clean as possible. If the seller has equity coming, try to work it out so they can get their due now rather than later. This way they have no reason to be “hanging around,” so to speak.
Third, if there is an excessive amount of equity in the deal (to me, this means you are buying “subject to” at less than 70% of FMV after repairs), then close with an attorney.
Fourth, disclose, disclose, disclose. Have the seller sign numerous disclosures stating that: a) they know you are buying the property as an investment, b) they know you will make a profit on the sale of the property, c) they are knowingly selling at a discount to facilitate a quick sale, d) they have been given the opportunity to consult legal counsel regarding this transaction, e) they will not contact the lender for any reason after you buy the house, and f) they will not contact your tenant/buyer for any reason.
While nothing is absolute, these are just a few of the things I use most often to avoid possible problems with a seller down the road. So far, so good.
[addsig]
WillGA,
thanx. that was an excellent eye-opener post. i have 4 on my desk now and i've thot about that very thing - seller not really wanting the sale and coming back later messing up my good mood. haha. u can believe i cut 'n pasted this bad boy for my incedentals folder!
On my PA's I have them sign verbiage which states:
Seller is aware that Buyer Derek D Kristoffersen and/ or his assigns is a real estate investor whose sole intention of buying this property is for a profit through resale, rehab or rental.
I interchange buyer/ seller as needed. I have never had anyone sue me, but this should help my case..
Interesting topic...
Although there are many pros to this method of investing, it is always good to hear about the times things go wrong..
Thanks for posting so we may learn
One Last Question...ok Maybe two...
Concerning The DOS Clause!
Isn't the Bank or Mortgage COmpany alerted when the Monthly Payment Statements are mailed to a different address and Phone Number?
Has anyone had the DOS clause invoked? And Why?
Thanks...