Buying Foreclosures - Subject To & Lease Options

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When you are considering buying pre-foreclosures (that's what they are called before the auction) you have to have some money to bring the loan current, give moving money to the seller, pay closing costs and make payments for a few months while you find your buyer. If it's a fixer, you need rehab money. But whatever you do, don't miss a payment.

Actually, I have done Subject To financing many, many times with both pre-foreclosures and simply "off market" properties where the owner is current. 

For instance, one house I bought Subject To, for $100 plus taking over the existing loan. The loan was current, not a pre-foreclosure but they had just refinanced, so there was no equity to speak of. They got a big chunk of money out of their refinance.

Then I put together and sold the property on a lease option for $50,000 more than what I bought it for, where I got a $25,000  down as an option fee,  with the rest, $25,000 more to be paid when the option is exercised. I gave them a payment at 8% interest which gives me a positive cash flow of $900 per month. 

When they exercise the option I'll get the rest of the $25,000 they owe me from converting the option to a purchase, plus any paydown on the mortgage is mine to keep.

Meanwhile I get the tax write offs, too. And they take care of all Cap Ex. If the AC breaks for instance, they pay to have it repaired, etc.

Since appreciation has gone up they get the appreciation, if & when they exercise the option. Which is fine with me. I got $25,000 on signing the option and I'm into it for $100. And, I'm totally "Hands Off".

But why would my buyer do this? Why would they give me a ton of money and not own the property until they exercise the option? Their credit report, while not nasty, wasn't good enough to qualify for a loan so they have used the time to straighten out their credit. I let them treat it as their home. They can paint the walls any color they want. They get the appreciation.

I do this in Arizona & Texas mainly but I will also do it in Ohio and Indiana in the right properties. Some of the properties get only $500 positive cash flow but I've gotten much, much higher. It works for both sides, I don't pay realtor fees when I buy and I don't pay realtor fees when I sell. 

Seriously friends, this is not rocket science and isn't that hard to learn.