Subject To for Fix and Flip

Philadelphia, Pennsylvania
Creative Real Estate Financing
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Subject To for Fix and Flip

Brett Chupka
Member since 2020 · 13 posts · 5 votes

Hi everyone, looking for some advice. 

I've been speaking with a seller off market for a SFH value add property. I'm trying to find the best way to go about structuring this deal but it seems like there are so many options and I'm just not all that familiar with most of them.

End goal would be to fix and flip, maybe BRRRR. Probably 4-6 month hold period with most of the work self performed. I'm trying to purchase it with as little down as possible. The seller said they are interested in seller financing but they still have a mortgage of about $130k. The mortgage is what is throwing me off.

I feel like typical sub2's are for long term holds. Like I mentioned, I'd be looking to sell or refi in 4-6 months. Does anyone have any experience using sub2 for flipping? Does it even make sense to use it sub2 for flips? It seems like the sellers tax benefits of seller financing would go away if my intention was to flip it. He would end up getting a lump sum after I would sell the property. 

I thought a wrapped sub2 would be ideal for me because I can get into it for a low down payment and probably afford a lot of the rehab budget without needing a hard money loan or something along those lines. The seller would also get a little more interest in the mean time so it may be a win-win. Any sort of input on this type of deal would be really appreciated!  

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
Quote from @Brett Chupka:

End goal would be to fix and flip, maybe BRRRR. Probably 4-6 month hold period with most of the work self performed. I'm trying to purchase it with as little down as possible. The seller said they are interested in seller financing but they still have a mortgage of about $130k. The mortgage is what is throwing me off.

I'd be looking to sell or refi in 4-6 months. Does anyone have any experience using sub2 for flipping? Does it even make sense to use it sub2 for flips? It seems like the sellers tax benefits of seller financing would go away if my intention was to flip it. He would end up getting a lump sum after I would sell the property. 

I thought a wrapped sub2 would be ideal for me because I can get into it for a low down payment and probably afford a lot of the rehab budget without needing a hard money loan or something along those lines. The seller would also get a little more interest in the mean time so it may be a win-win. Any sort of input on this type of deal would be really appreciated!  

So a wrap should work well.  That basically takes the place of 'sub2'.
Just know it takes at least 6 months to rate/term refi at ARV.  12 months if you want cash out.  If there has to be a balloon, get at least 24 months.  
Try and get at least a special warranty deed with your seller mortgage. Better than a quitclaim. 
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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Brett Chupka:

    End goal would be to fix and flip, maybe BRRRR. Probably 4-6 month hold period with most of the work self performed. I'm trying to purchase it with as little down as possible. The seller said they are interested in seller financing but they still have a mortgage of about $130k. The mortgage is what is throwing me off.

    I'd be looking to sell or refi in 4-6 months. Does anyone have any experience using sub2 for flipping? Does it even make sense to use it sub2 for flips? It seems like the sellers tax benefits of seller financing would go away if my intention was to flip it. He would end up getting a lump sum after I would sell the property. 

    I thought a wrapped sub2 would be ideal for me because I can get into it for a low down payment and probably afford a lot of the rehab budget without needing a hard money loan or something along those lines. The seller would also get a little more interest in the mean time so it may be a win-win. Any sort of input on this type of deal would be really appreciated!  

    So a wrap should work well.  That basically takes the place of 'sub2'.
    Just know it takes at least 6 months to rate/term refi at ARV.  12 months if you want cash out.  If there has to be a balloon, get at least 24 months.  
    Try and get at least a special warranty deed with your seller mortgage. Better than a quitclaim. 
    1Reply
  • Brett Chupka
    OP
    Member since 2020 · 13 posts · 5 votes
    3y

    Hi Steve, I thought a wrap would work well too but having to wait such a long time for a refi isn't ideal. If my main exit strategy was to sell though, do you still think a wrap would make sense? I could always go the route of using a hard money or private money and just doing a straight up cash purchase. My thought was any bit of seller finance though would help lower any hard money expenses. 

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Brett Chupka:

    Hi Steve, I thought a wrap would work well too but having to wait such a long time for a refi isn't ideal.

    The at least 6 months to refi at ARV rule applies with any best terms conventional loan, no matter how you acquire it.

    The wait shouldn't be a factor if your wrap is reasonably favorable.   Hard money 'cash purchase' will just cost you a lot and give you short deadlines with high consequences.   You'll still have to wait 6 months for a conventional refi.   

    You can begin the refi process at say 5 months,  it just has to appraise and close after 6 months of ownership. 

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Us as investors need to adapt with the market, this is the time for creative finance. Take advantage, there are many sellers who are in a position with no equity. 

    1Reply
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