What Is Sub To?
For all you knowledgable investors, what is exactly sub to? I understand that you are looking for people behind on payments, but are you paying them to be in their position or are they paying you? And once you have the land, can you rent it to anyone?
You are simply agreeing to accept title subject to the existing mortgages. Just like you accept title subject to an easment or such on the property. You agree to take title subject to a defect.
Either party may continue to pay the mortgage but what is typically done is that you start paying the mortgagee directly or by using a loan servicing company.
Once you buy a property you can use it for any lawful purpose.
John $Cash$ Locke has a very good program I've heard although I have not reviewed it myself. Its only $200 after shipping on this site.
gusrock1414,
Glad to meet you.
This link will help you understand.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=146
John $Cash$ Locke
I'm in a giving mood.
1st sub2 is short for subject to existing financing.
That means that you are buying a property and you are going to assume the owners financing.
A deal might look like this
fair market value after fixing up = 200,000
1st loan 100,000
fix up = 20,000
late payments = 10,000
marketing costs = 15,000
so, assuming the above, there is $55,000 in equity.
Being a fair person you offer to split this with your troubled home owner.
You tell him you will pay his back payments fix and sell, and 27,500 will go into his pocket by the time all is said and done. He agrees and signs over his house to you, and you keep his financing.
Hopefully you have a million more questions now and will do further research. However, I hope that gives you an idea.
[addsig]
nlsecor,
If your going to spend $45k on a sub to only to make $27,500...by my calculations, you won't be in business too long. even if you kept all the equity, you still won't be in business too long.
I would not purchase a house that needed 20k in repairs sub to. That, in my book, is a rehab.
I think the article Cash gave better explains the process.
Quote:
On 2004-01-14 21:43,
For all you knowledgable investors, what is exactly sub to? I understand that you are looking for people behind on payments, but are you paying them to be in their position or are they paying you? And once you have the land, can you rent it to anyone?
gusrock1414
No, No, No.....
The homeowners do not have to be behind on their payments. AND preferably, you want a good house with very little equity. The object is to show them that they'll end up "paying" to sell their house if they use a realtor to sell it for them, whereas if they sell to you, you can give them cash for their equity...
Here's a real example:
Mortgage is 2 yrs. old and the house is appraised at $200k
Their balance is $185k
They're asking for $200k
It's your job to show them that with a
Realtor at an avg. of 5% comm. ($10,000) they're only going to get $190k
So now that leaves about $5k , you then tack on holding costs...i.e, another 2 months Mortgages, maintenance, utilities etc.
Until you have exceeded the $5k left over...now they owe...
So you offer them, let's say...$4000, for their equity payable in 2 installments...1 when you get a deposit from your tenant/buyer and the other on the end when your tenant/buyer refinances the property into their own name...
Hope this helps
Clif
[addsig]
Clif, OK, you've enticed us with some apparently razor-thin wiggle room (profit potential) here. Now could you please bring it home and show us how to, for example, sell the house for more than its appraisal and fatten our bank accounts? Then I won't have to fork out big $$ to buy John's Sub to course...
Ok guys,
I am really confused now. Can anyone simplify how to invest in a sub to?
As John Locke said in his article, "Subject To investing is where the financing stays in place and you take title to the property."
In other words, a seller transfers title to you and you take over the mortgage payments, even though the mortgage loan stays in the seller's name. This is the essence of purchasing Subject To the existing financing.
Whether there are arrearages, or any equity, does not change the essence of the transaction. A seller is still giving you title to his property and you are taking over his obligations without assuming his liability.
Whether you target the preforeclosure owner or no equity property depends upon your market and how much profit is left on the table for you.
In pbodys example, there's just one thing I don't understand....
The seller's credit is remains at risk since his name remains on the mortgage. I don't see where he's compensated for this in pbodys' example. Does he get to hold some papar against your promised cashflows (which are paying his mortgage?). What his course of action if the buyer doesn't pay his mortgage? There must be something I'm missing that counters this risk to the seller.
A subject to is when you acquire a property subject to existing www.financing.Nothing more nothing less.
Jon,
Generally speaking...the sellers compensation is peace of mind. They are in a situation where they need to sell....remember, we are dealing with motivated sellers. So, if they don't sell to you, they may face foreclosure, they may have to make two payments, they may have to move out of town in 2 weeks and won't be able to tend to the property....there are many reasons why someone would have to sell. So they either risk destroying their credit, or they can TRUST in you to do what you say your going to do.
And being the trustworth person that you are, you will make the payments and do exactly what you say your going to do. IF you don't, please do not attempt a sub to deal for honest investors do not need others messing things up. Nothing against you personally, this is just general talk.
I am unclear as to where you make your money and what happens after the have agreed to your deal. Where does the profit come from and aren't you now paying a good deal of cash each month for their mortgage payment?
In this article, John comments on the profit centers.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=266