I'm Buying Negative Equity Properties and I'm Excited About It

[Andrew McGuire]

I purchased 1 and UC for 2  properties this month two of which I'm keeping as Long term rental. 

The first 699 E Gold Dust, San Tan Valley AZ comps around 375K and I purchased for 393K so I'm lost about 18K equity by purchasing. The reason I'm okay with this and others I'm purchasing like it is that I took over a 3.25% interest rate which makes my payment all in $1611/month + HOA. Paid of solar and the average bill is $7/month. I plan on renting this as a Long Term Rental and market rents are 2200 in that area. So I might cashflow a little bit but big picture I have principal paydown over $600/month which will grow with that low interest rate. I plan on holding for 6-10 years and see where we are at and will refi or sell depending on equity and cashflow #'s. I have two other properties similar under contract where I am overpaying by 15-25K and putting only 10K down + closing cost.

I believe in real estate long term so am buying as many properties as I can now that pay for themselves, the goal is to get to 100 properties this way that all go up minimum of $100K in the next 5-10 years. To get the cash for down payments I am going to do a mortgage wrap on the low down payment purchases and collect a larger down payment from wrap buyer. 

[Andrew McGuire]

Quote from @Joe S.:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

No argument for me.. I have been saying this from Day one when the Morby and sub 2 guys started touting and charging for this .. that you are going to have a train wreck follow these transactions . And those are from those folks who have good intentions up front then you have the crooks in this industry or those with no morals and lack character. And we know distressed real estate is full of those dudes and dudettes.

So for the last couple of days, I've been thinking. What is the percentage of people that simply walk away from their house and let it foreclose compared to the people that has had a Sub2 gone bad? Without any sort of pre-determined agenda, I think there's more people that has walked away from their houses and let it go to foreclosure. Has there been some Sub2 buyers that have trashed the sellers credit? Probably….I don't know them personally if they did though. I have run into a number of people that have let their house simply go back to the bank, so I am assuming that is way more prevalent…

 Same, no figures to back it up but from what I've seen first hand is way more go back to the bank, that is where most of my deals have come from is sellers heading to foreclosure. 

[Andrew McGuire]

Quote from @Henry Clark:

OP I’m going to go with you in this.  Although this is nothing I would do.  

Risk Reward.

My wife and I have two different Risk Reward levels.  She likes cash and I hate cash.  As we did our financial planning she needed comfort.  Asked her what her comfort level was in terms of having cash on hand.  She ended up at 5 years living expenses as cash or cash equivalents on hand.  I hate that because we could quadruple that in 5 years.  But I went with it.

My point is I can’t and won’t go bankrupt at this point in my life.  I also won’t go back to 8 to 7 corporate life or greet people at Walmart and live in a trailer.  I can’t take on the exposure inherent in your deals.  

I agree RE will go up and is part of our business model.  Working thru a 75 acre country subdivision with 2 to 6 acre lots for sale.  We don’t build.  We have 50% equity and a loan on the other 50%.  our business model is 120% return before taxes over a 5 year period.  Even if we fail, we come out positive.  

 Now if I was in your shoes??? I would and have risked it all on an investment, not my life style.  My logic was sound, the return was there, then corporate stupidity beyond reality occurred.  The president of the investment decided that -1 plus -1 came out a +2.  Still remember his name.  

I say go for it.   As to the original owners.  A drunk , drug addict, gambler always needs one more fix and you are helping them.  They are okay with it at the moment.  

Phoenix Arizona is a great RE market. It had both one of the sharpest drops in price and sharpest recoveries.  You just have to be on the right side.  

 Sound logic, thanks for sharing. And agree it comes to risk reward, just happens that all the people I know personally that "made it" went for it. None of them have the Dave Ramsey slow safe path. 

[Andrew McGuire]

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

 @James Hamling You do know that real estate people have been doing Subject To's for over 30 years, way before it went mainstream. Some of the most prevalent have done thousands and are Real Estate attorneys and own thousands of wraps today. You know there are Title companies in many states and Real Estate attorneys that specialize in this transaction? I agree if people are doing it recklessly without the proper legal advice, title companies and disclosures there will be some problems. You are not doing Subject To but you are seeing all of these done wrong, curious how? What I am seeing is most are doing it correctly not as you claim 99% doing it illegally. 

[James Hamling]

Quote from @Don Konipol:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-

 @James Hamling

“The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit.”

Since you have already stated that you feel (1) the act of doing a sub to transaction is illegal and (2) that the seller has signed a contract prohibiting them from selling the property unless the mortgage has been paid off (even though this is factually incorrect), the only surprise is that ANY sub to fits your definition of legit. 
Look, you’re entitled to your opinion.  However, “legit” is just that, an opinion.  You originally stated the two misconceptions/incorrect statements I’ve outlined above.  Now you seem to be saying “well, even if what I previously stated isn’t true ( your premise) I still say that sub to is wrong, bad, illegal, and surely will lead to the participants being criminally charged for there activity.  
Yes, some will probably end up on the wrong side of a criminal or at least cease and desist directive.  But the many that do the transaction in an honest and honorable way have NOTHING to fear from authorities.  First, I would be absolutely shocked if any charges were ever brought against participants in a commercial transaction for transacting a sub to deal. Same with 2 investors on a residential property.  Further, I believe as I previously stated that full disclosure will eliminate any possible AG action. 

I personally have done about 6 or 7 sub to transactions, and each turned out well.  On the sell side I did have to take a property back for non payment, but the individual did a “deed in lieu” so foreclosure was not necessary.  I have also observed many investors who have done dozens of these transaction EACH, with no defaults whatsoever.  

This being said, I would only recommend a sub to to a homeowner who has no other option, or for whom the negative consequences and risks are outweighed by the benefits of doing this type of deal.  In other words the homeowner can not sell the property any other way (typically because either (1) they owe more on the property than they can net on a conventional sale or (2) the property will not qualify for financing in its current condition or the current economic conditions.  Or, the homeowner can obtain a significantly higher net price doing a sub to AND (1) is okay with the fact that as long as the mortgage remain unpaid his borrowing ability is impacted (2) understands the risks and potential negatives and (3) has a “what if” plan that can be executed. 

Most sub to transactions are done WITHOUT the participation of a third party intermediary (broker). Since you’re a broker, I wonder if there’s not an inherit bias in your attitude toward a method of transaction that eliminate the broker commission from the equation? 

I read your first 2 sentences and just skipped everything else because nothing else mattered, your first 2 sentences were wildly incorrect and distorting things so, really nothing else mattered. 

To clarify, as I have clarified a multitude of times, SubTo can be done legally, but the issue is the vast majority are NOT done that way and far too many don't accurately explain/instruct on SubTo. 

What you keep standing on, DOSC, stating it doesn't PREVENT one from selling that way.... semantics. I'm not engaging in such because when one has to play games of things to argue a transactions legitimacy, that should be a sign. 

It's not complicated, lending finance institutions have a means of transferring financing from 1 part to another. It's obvious common sense there NOT ok with just randomly handing it off to whoever else. 

And it's also common sense why the vast majority are striving to do SubTo, because they have didly-squat for $ or ability to get financed.    But it will be a-ok right? Nothing can go wrong with persons who CANT get financed taking control of properties.... Did '08' teach nothing???? 

Why is it no SubTo "Guru" or supporter ever tout's to actually read a mortgage? 

Try it, read the thing, read the terms. Do that then tell me how "a-ok" Sub-To is. But let me guess, it will be back to the "oh it will be ok, banks won't care long as they get there payment".... 

A house built on sand....... 

[James Hamling]

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

 @James Hamling You do know that real estate people have been doing Subject To's for over 30 years, way before it went mainstream. Some of the most prevalent have done thousands and are Real Estate attorneys and own thousands of wraps today. You know there are Title companies in many states and Real Estate attorneys that specialize in this transaction? I agree if people are doing it recklessly without the proper legal advice, title companies and disclosures there will be some problems. You are not doing Subject To but you are seeing all of these done wrong, curious how? What I am seeing is most are doing it correctly not as you claim 99% doing it illegally. 

Lol really.... So apparently you've been living under a rock because there is a mob of people worshiping a guy who's name rhymes with "Orby", who all but uniformly do things in a callous, reckless, wildly INCORRECT manner. 

How I know what I know.... It's an insider perspective and I will leave it at that. 

I will add, it's this frenzied fervor that's also the issue. Anyone speaks out on any critical issue with SubTo and it's this crazed frothy mouthed response of "how dare you say anything" and demanding all just speak nothing but glowingly on it.     

SubTo is NOT simple, it's IS detailed, and NOT a universal fit. There IS serious implications to it and steps to do it correctly. But no, speak nothing of this....... pretend all is a-ok....... 

[Andrew McGuire]

Quote from @James Hamling:

Quote from @Andrew McGuire:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Don Konipol:

.... If I were to sell the property, and merely not inform the lien holder, I’ve committed no fraud....

So an action by two working together to convey real estate, and pass-on a mortgage to a person who never was qualified or received such is a-ok huh??? Google took about 1.7 seconds to sort this out....

James,  major difference here is sub to almost always the mortgage has been in effect for many months or years.. Straw buyers are  doing things to acquire the asset at the same time they acquire the mortgage.. I have been approached my many who thought the straw buyer concept was great but of course I would not participate.. loan fraud like that is 5 years in federal prison and they will come after you years after the fact.. I have seen it happen and have been interviewed by the FBI twice on this by clients of mine who went to the dark side..

As a HML for a long time  started in the late 80s.. I am very familiar with the small print and the covenants Don is talking about and he is absolutely correct.. Alienation of title gives the beneficiary of the loan the Right but not the obligation to accelerate the note and call it due.

Where the abuse is going to come into play with this is many of these so called sub  2 buyers will take their play book from the wholesaler world IE hide everything no disclosure of anything just get them to the closing table and off you go.. Whereas, Don mentions are we talking home owner with zero sophistication or A deal between Don and Me  or Me and You..

I can see a potential gate keeper like we are seeing a little bit in wholesaling out here on the west coast where the title companies are making the wholesaler disclose all aspects of the transaction to the seller before they will issue a new policy.  Maybe on Sub 2  they can do something similar or at least have a disclosure document like we see in all the 50 disclosure docs RE agents have to use to sell houses. ???  Maybe ??

Can SubTo be done legally, Yes 100% as we both know. But, and it's a HUGE but; it requires doing things in a correct manner. A manner which is NOT being touted far FAR too often and which the vast majority are completely violating. 

The vast majority I have heard anything around promote, encourage, even celebrate the actions that would enact various degrees of fraud. namely, the #1 I hear is some narrative of "no no no, don't worry about your lender, we will just keep this quiet and between us alone, they don't need to know, all they care about is getting there payments, nothing will happen, let's just keep this quiet".     And when look at all things on Straw-buyer, it fit's that mold perfectly EXCEPT it's on conveyance and not origination. That is a differentiator I don't see saving persons from penalties as it's the exact same intent, same mechanisms, just different in time. 

Be honest, how often do we see anything on SubTo speaking of disclosing and all that? All but never. UNLESS it's a headline of how SubTo is fine, a-ok, legal, and then details buried way down into text. 

The vast majority doing SubTo are doing it illegally. I have seen it, I know many others who have as well. Rarely, less than 1% rarely have I ever seen a fully legal legit one. I only know of 1 ever that was fully legit. 

I know of dozens upon dozens where it is the "sshhh, let's keep this quiet and the bank shouldn't find out" and the buyer has no capacity to actually purchase them if/when it comes unraveled, none. And I know of a few dozen that have come unraveled. 

Finance starts getting burned on these, it starts hitting a certain "temperature" level, I assure the criminal charges will start happening. And when they start, you know how this song goes, it's all the look-backs and all of a sudden an avalanche of "stings" and what-not. 

 @James Hamling You do know that real estate people have been doing Subject To's for over 30 years, way before it went mainstream. Some of the most prevalent have done thousands and are Real Estate attorneys and own thousands of wraps today. You know there are Title companies in many states and Real Estate attorneys that specialize in this transaction? I agree if people are doing it recklessly without the proper legal advice, title companies and disclosures there will be some problems. You are not doing Subject To but you are seeing all of these done wrong, curious how? What I am seeing is most are doing it correctly not as you claim 99% doing it illegally. 

Lol really.... So apparently you've been living under a rock because there is a mob of people worshiping a guy who's name rhymes with "Orby", who all but uniformly do things in a callous, reckless, wildly INCORRECT manner. 

How I know what I know.... It's an insider perspective and I will leave it at that. 

I will add, it's this frenzied fervor that's also the issue. Anyone speaks out on any critical issue with SubTo and it's this crazed frothy mouthed response of "how dare you say anything" and demanding all just speak nothing but glowingly on it.     

SubTo is NOT simple, it's IS detailed, and NOT a universal fit. There IS serious implications to it and steps to do it correctly. But no, speak nothing of this....... pretend all is a-ok....... 

Your talking about one guy and seem to have some fascination with, there have been people buying thousands of properties this way for 30+ years that are not Youtube starts, they are doing it correctly and also teaching. Some of these teachers are real estate attorneys and title companies/reps. 

Nobody is frenzied except you and I'm not saying don't say anything critical about it, just be fair and educated on it. Your the one saying How dare you saying its illegal and fraud repeatedly when it is not. 

I agree with your last statement that it is detailed and not a universal fit and it needs to be done correctly. Anyways this article was not intended to be a debate on Subto, I was talking about buying properties now that cashflow that maybe I overpaid for, that's it. I'm buying several properties this month using this strategy the right way with the right people involved and I'm happy with it. Do what works for you, hopefully you are doing well in your own business. Please save me the LOL's and insults, 

[Henry Clark]

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

Example, change as needed.  
Bought $200,000. $20,000 above market value of $180,000.  With a 3.5% interest rate attached.  Assume 7% sales commission.  Change figures to your environment.  

$200,000 with a 7% commission.  Say $14,000 although will be higher if you sale higher.  Just as a placeholder.

Assume capital gains rate  say average rate of 15% for discussion.

Go with no renovation or major repairs.  It’s cash flowing positive.  Everything is great model.

The $180,000 Market value has to go to??? $240,000 to meet your financial objectives?  Risk adjusted go to $270,000?

Within 2 years????

What price escalation and time frame hits your personal financial targets?

Stopped at Popeyes for lunch. Eating near 5 acres we bought for future development.  Cost $800,000.  Plan to make $2mm in profit when we decide to develop.  Might not develop for 1 up to 3 years from now.  Thus holding costs will eat into the profits.  

Gets back to Risk Reward.  Could have that money making 5%, with no property tax, insurance, mowing costs.  Little risk. Or not paying 8% if we took a loan out.  

Who says we will make $2mm profit in 3 to 4 years from now?    I’m okay with the risk reward because A.  It’s our money, B. We have done this before. 

What sales price and what time frame will it take to hit your financial targets?  

[Jay Hinrichs]

Quote from @Henry Clark:

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

Example, change as needed.  
Bought $200,000. $20,000 above market value of $180,000.  With a 3.5% interest rate attached.  Assume 7% sales commission.  Change figures to your environment.  

$200,000 with a 7% commission.  Say $14,000 although will be higher if you sale higher.  Just as a placeholder.

Assume capital gains rate  say average rate of 15% for discussion.

Go with no renovation or major repairs.  It’s cash flowing positive.  Everything is great model.

The $180,000 Market value has to go to??? $240,000 to meet your financial objectives?  Risk adjusted go to $270,000?

Within 2 years????

What price escalation and time frame hits your personal financial targets?

Stopped at Popeyes for lunch. Eating near 5 acres we bought for future development.  Cost $800,000.  Plan to make $2mm in profit when we decide to develop.  Might not develop for 1 up to 3 years from now.  Thus holding costs will eat into the profits.  

Gets back to Risk Reward.  Could have that money making 5%, with no property tax, insurance, mowing costs.  Little risk. Or not paying 8% if we took a loan out.  

Who says we will make $2mm profit in 3 to 4 years from now?    I’m okay with the risk reward because A.  It’s our money, B. We have done this before. 

What sales price and what time frame will it take to hit your financial targets?  

Henry what type of development  another Storage facility ???  

[Henry Clark]

Quote from @Jay Hinrichs:

Quote from @Henry Clark:

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

Example, change as needed.  
Bought $200,000. $20,000 above market value of $180,000.  With a 3.5% interest rate attached.  Assume 7% sales commission.  Change figures to your environment.  

$200,000 with a 7% commission.  Say $14,000 although will be higher if you sale higher.  Just as a placeholder.

Assume capital gains rate  say average rate of 15% for discussion.

Go with no renovation or major repairs.  It’s cash flowing positive.  Everything is great model.

The $180,000 Market value has to go to??? $240,000 to meet your financial objectives?  Risk adjusted go to $270,000?

Within 2 years????

What price escalation and time frame hits your personal financial targets?

Stopped at Popeyes for lunch. Eating near 5 acres we bought for future development.  Cost $800,000.  Plan to make $2mm in profit when we decide to develop.  Might not develop for 1 up to 3 years from now.  Thus holding costs will eat into the profits.  

Gets back to Risk Reward.  Could have that money making 5%, with no property tax, insurance, mowing costs.  Little risk. Or not paying 8% if we took a loan out.  

Who says we will make $2mm profit in 3 to 4 years from now?    I’m okay with the risk reward because A.  It’s our money, B. We have done this before. 

What sales price and what time frame will it take to hit your financial targets?  

Henry what type of development  another Storage facility ???  

 I'm in trouble on this one.  All of our other investments have been ready set go.  We had an immediate plan.  This one we bought knowing we wouldn't develop it immediately since we had other open projects in play (risk); but due to both the location, zoning and price we couldn't pass up.  No more like it, in that area.

Zoned commercial.  We would have to so a special use permit to do Self Storage.  Across the road is Industrial and could do Self Storage, so being next to the correct zoning helps.  Already discussed with the P/Z department.  The main road frontage they definitely will not allow self storage. Thus, we would probably split 2 acres along the main front (4 lane, 17,000 VPD, 35 mph); and the back 3 acres ask to do Self Storage. 

A.  This Self storage would be tricky also.  We stay away intentionally from Climate Control. We could do drive up on the 3 acres and the risk reward would be very good.  But if we want a big payday, we will need to do some or all Climate control for the large REITS to buy, which they would in this location.  But the Risk Reward becomes higher risk, higher reward.  It's a great location.

B.  (1.) The 2 acre frontage would need to be developed into some other usage such as small office, retail, laundry mat, construction business office location (my buddy knows some people). (2.) Or sale and stay in my own lane.  Really don't want to be either a developer or landlord for these types of businesses.

We are always looking at both our Risk Reward. Selling 3 self storage locations in a "C" market.  We need to build there, but building costs have gone up double and the returns aren't very good in "C" markets.  Have a lot of built-up Equity in those.  Want to pay down some debt, then move those funds to higher potential return projects. Investment pruning.

Have a 75 acre country subdivision coming on line.  2 to 6 acre lots, not houses.  Will have to see how the market receives.  Housing inventory low, plus 25 minutes outside major metro, people wanting to move out.  Walk out basements, mature trees, views, big boulders, etc.

Have another location with Flex building potentials or two different types.  We have had on hold for about 4 years.  Would have a good return, but we have always had other projects with better returns.  This land was bought really cheap with cash, thus holding cost is really low.  Have permit, building quote, contractor lined up, trades lined up, no downpayment needed per bank since we have lots of equity tied to the Self-Storage side of this property.  Just need to squeeze the trigger.

As we have discussed before, Teak in Belize.  We are closing on an additional 89 acres to plant Teak in Belize.  I like NASTY.  You have to drive through a trash dump and buzzards to get to this area, so no EXPAT will buy there except an idiot like me.  But it is in a great Rec area.  Plus, there is a bush trail all I have to do is bulldoze a road, that bypasses the dump.  Can always open up that road and then the back property immediately becomes worth more.  Approached on a 145 acre mature teak plantation ready to harvest.  Owner wants his money in, plus that again. Standing trees are worth $1 per board foot; so he wants $2.  Retail boards are $28 to $32 per board foot.  Lots of work, but also margin in between.

Plus, plus, plus.  Glad we are retired.  There are way too many deals out there, to do.

Just finishing 1,600 sq ft caretakers house in Belize.  That will free up more bandwidth.

[Steve K.]

Apologies as I have not read all the replies. I remember in 2012 I had a friend jump on a plane with a suitcase full of cash to buy up properties in Phoenix for 50% of what they had been worth in 2008. He doubled his money when the market recovered. That’s the only way I’d buy property there, no way would I pay more than current market value at the tippy-top of the market cycle in a classic boom/bust location. Add in the sub2 shenanigans and it just gets even uglier, potentially. Odd strategy IMO but good luck, I hope it works out for you. 

[V.G Jason]

Quote from @James Hamling:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Bruce Lynn:

So what are you doing to bridge the equity gap?  Paying cash?

Seems like anyone with 3.25% interest should have solid equity in most cases, so I'm surprised you can find people who want to do Subject2 on these, when it seems like they could sell, wipe out the loan and sell with equity.   

How often is it in AZ that people pay cash for solar panels?  In Texas it seems like 1 in 100.  So if you found one with paid off system, I guess that is a big bonus.  Does it have battery wall to power at night.  I would think in AZ that is a must, because summer heat and AC must run 24 hours a day.   As an investor how does $7/month electric help you?   Can you charge higher rent to make up for the power bill discount?  Do tenants seek those out?

Just remember it's all well and good until it isn't.  Have some cash set up for when things go south.  They will at some point and you don't want to get caught holding the bag.  When it goes south, everything seems to go south all at the same time.  Properties take longer to rent, rent stagnates or deflates, credit dries up, banks tighter on loan rules, credit cards decrease credit lines, your credit score drops because instead of 30% utilization you overnight go to 50-80-100% when they drop your credit line, hard money dries up for flips, stock market goes down and you don't want to take losses or can't use margin.   Real estate is cyclical, stay in long enough and you will go thru a cycle.  Have enough resources so you can hit the other side of the cycle.

See what is happening the CRE investors right now in many cities.

 Bolded for truth. People evaluate risk as if only 10-25, maybe 33 percent of their portfolio can get hampered at once.No, just no. That **** comes at once, and it takes you straight down with it. 

There's no value at risk metric for real estate besides your fixed rate debt and obligatory physical expenses to maintain the house. These subto transactions from my understanding are pretty much paper assumptions, with little equity and a complete exposure to physical risk, original buyer risk, and lender risk. Why enter these? I get the rate to assume, it's very attractive. But not attractive enough to wear the risk. 

Not sure if I'm understanding how it would be any riskier than buying traditional route, the difference is these deals the renter pays for your expenses where if you buy traditional you'll be negative cashflow right now, traditional seems riskier. And not buying anything because it is to expensive is the riskiest. These properties will double in value and have a ton of equity with enough time as rents go up, as depriciation, as principal pay down at a much higher clip. 

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

I would have to sell the property or come out of pocket to pay for it. Same thing as if I bought the traditional way, not sure I get the point. If this is your mindset why invest in real estate at all? 

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

 If tenants stop paying we are in big trouble regardless of how you purchased. Unless you are putting 30% down. I wouldn't invest in real estate if you worried about that. Luckily I am mostly invested in a state that is still Landlord friendly and it is easy to remove tenants that stop paying. By the time that happens if ever the properties I purchased will likely be worth a lot more but I can't say that for sure. Its a risk I'm willing to tolerate again because my wraps are generating a nice cashflow with no money into the deal. 

My point was in regards to your little saying. With tenants not paying, your little equity comes & goes as long as it cash flows saying is out the window. Not about it being related to subto, seller finance, or conventional, or dscrd. So folks who press on cash flow and to a point that it's the only thing that matters--commonly miss the forest for the trees. 

If your tenants stop paying it's likely your house value will be dropping too, this comes in unison and at a grand scale. Now by that point has appreciation taken off enough to off-set? I hope so, but I think this turn will be a lot different than the last 10-12 years.

I'm still a big bettor that inventory changes, when rates drop, and this is going to cause the correction. 

Cash-Flow is NOT an input, it is a RESULT. 

A RESULT of current market revenue viability, maintenance and cap-x standings, operational expense's. 

Expenses such as insurance, tax's.... 

Thus; Cash-Flow is the WEAKEST metric of use because it is CHANGABLE. It is NOT a constant, and it's movement is NOT fully controllable. I'd argue at best one can influence, not control, expenses. 

So "IF" one argues there "safe" because of Cash-Flow, and that is say 10% of gross revenues, for example $240 per mnth net on a $2,400 rent.....    That means "IF" market rent's compress just 10%, you're Cash-Flow is GONE. 15% your in the red..... 

Cash-Flow is NOT a constant, I can't stress this SIMPLE fact enough. And it seems way too many are high on hopeium with some notion that Cash-Flow from "A" point in time is a universal forward-cast of permeance. 

Furnace breaks, pow there is your net for next year, 2, gone. Water heater, carpet replacement, etc etc.. Cash-Flow is a HOPE, not a fact. 

STR is a great example of this. Many STR's had great Cash-Flow, until they didn't. Operators changed nothing, property is as it always was, but the market changed and revenues collapsed, and with it cash-flow. Those with equity had options to pivot upon. Those without....

They need to fix the saying

Cash flow comes and goes, the location is forever. 

[Leah Smith]

Yes! Real estate investment is a long term game. I would say if you are ready and comfortable then you go for it, we can never time the market! 

[Jay Hinrichs]

Quote from @Henry Clark:

Quote from @Jay Hinrichs:

Quote from @Henry Clark:

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

Example, change as needed.  
Bought $200,000. $20,000 above market value of $180,000.  With a 3.5% interest rate attached.  Assume 7% sales commission.  Change figures to your environment.  

$200,000 with a 7% commission.  Say $14,000 although will be higher if you sale higher.  Just as a placeholder.

Assume capital gains rate  say average rate of 15% for discussion.

Go with no renovation or major repairs.  It’s cash flowing positive.  Everything is great model.

The $180,000 Market value has to go to??? $240,000 to meet your financial objectives?  Risk adjusted go to $270,000?

Within 2 years????

What price escalation and time frame hits your personal financial targets?

Stopped at Popeyes for lunch. Eating near 5 acres we bought for future development.  Cost $800,000.  Plan to make $2mm in profit when we decide to develop.  Might not develop for 1 up to 3 years from now.  Thus holding costs will eat into the profits.  

Gets back to Risk Reward.  Could have that money making 5%, with no property tax, insurance, mowing costs.  Little risk. Or not paying 8% if we took a loan out.  

Who says we will make $2mm profit in 3 to 4 years from now?    I’m okay with the risk reward because A.  It’s our money, B. We have done this before. 

What sales price and what time frame will it take to hit your financial targets?  

Henry what type of development  another Storage facility ???  

 I'm in trouble on this one.  All of our other investments have been ready set go.  We had an immediate plan.  This one we bought knowing we wouldn't develop it immediately since we had other open projects in play (risk); but due to both the location, zoning and price we couldn't pass up.  No more like it, in that area.

Zoned commercial.  We would have to so a special use permit to do Self Storage.  Across the road is Industrial and could do Self Storage, so being next to the correct zoning helps.  Already discussed with the P/Z department.  The main road frontage they definitely will not allow self storage. Thus, we would probably split 2 acres along the main front (4 lane, 17,000 VPD, 35 mph); and the back 3 acres ask to do Self Storage. 

A.  This Self storage would be tricky also.  We stay away intentionally from Climate Control. We could do drive up on the 3 acres and the risk reward would be very good.  But if we want a big payday, we will need to do some or all Climate control for the large REITS to buy, which they would in this location.  But the Risk Reward becomes higher risk, higher reward.  It's a great location.

B.  (1.) The 2 acre frontage would need to be developed into some other usage such as small office, retail, laundry mat, construction business office location (my buddy knows some people). (2.) Or sale and stay in my own lane.  Really don't want to be either a developer or landlord for these types of businesses.

We are always looking at both our Risk Reward. Selling 3 self storage locations in a "C" market.  We need to build there, but building costs have gone up double and the returns aren't very good in "C" markets.  Have a lot of built-up Equity in those.  Want to pay down some debt, then move those funds to higher potential return projects. Investment pruning.

Have a 75 acre country subdivision coming on line.  2 to 6 acre lots, not houses.  Will have to see how the market receives.  Housing inventory low, plus 25 minutes outside major metro, people wanting to move out.  Walk out basements, mature trees, views, big boulders, etc.

Have another location with Flex building potentials or two different types.  We have had on hold for about 4 years.  Would have a good return, but we have always had other projects with better returns.  This land was bought really cheap with cash, thus holding cost is really low.  Have permit, building quote, contractor lined up, trades lined up, no downpayment needed per bank since we have lots of equity tied to the Self-Storage side of this property.  Just need to squeeze the trigger.

As we have discussed before, Teak in Belize.  We are closing on an additional 89 acres to plant Teak in Belize.  I like NASTY.  You have to drive through a trash dump and buzzards to get to this area, so no EXPAT will buy there except an idiot like me.  But it is in a great Rec area.  Plus, there is a bush trail all I have to do is bulldoze a road, that bypasses the dump.  Can always open up that road and then the back property immediately becomes worth more.  Approached on a 145 acre mature teak plantation ready to harvest.  Owner wants his money in, plus that again. Standing trees are worth $1 per board foot; so he wants $2.  Retail boards are $28 to $32 per board foot.  Lots of work, but also margin in between.

Plus, plus, plus.  Glad we are retired.  There are way too many deals out there, to do.

Just finishing 1,600 sq ft caretakers house in Belize.  That will free up more bandwidth.

Just funded my first two deals in Sioux  land   flew through Omaha just 2 weeks ago.. reminds me of the central valley of CA somewhat.. Sans the view of the high Sierra in the back ground.  Will see how it goes.. I liked the little pocket of ND though some really nice tax breaks there.

[Bruce Lynn]

Quote from @Henry Clark:

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

I can only vote once, not like normal elections where I can vote 10x....so just know the intent is there.  Excellent answer.

[Henry Clark]

Quote from @Bruce Lynn:

Quote from @Henry Clark:

OP. What price escalation and how soon would it take to hit your financial return figures?  Approach this from a purely appreciation and not cash flow standpoint. Assume cash flow is positive.  

I can only vote once, not like normal elections where I can vote 10x....so just know the intent is there.  Excellent answer.

Would like to see the math and timeframe to make this approach work.   Even before risk adjusting.  

[Andrew McGuire]

Quote from @Leah Smith:

Yes! Real estate investment is a long term game. I would say if you are ready and comfortable then you go for it, we can never time the market! 

Equity Comes and Equity goes but I don't care as long as it cashflows. 

[Andrew McGuire]

Quote from @V.G Jason:

Quote from @James Hamling:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Bruce Lynn:

So what are you doing to bridge the equity gap?  Paying cash?

Seems like anyone with 3.25% interest should have solid equity in most cases, so I'm surprised you can find people who want to do Subject2 on these, when it seems like they could sell, wipe out the loan and sell with equity.   

How often is it in AZ that people pay cash for solar panels?  In Texas it seems like 1 in 100.  So if you found one with paid off system, I guess that is a big bonus.  Does it have battery wall to power at night.  I would think in AZ that is a must, because summer heat and AC must run 24 hours a day.   As an investor how does $7/month electric help you?   Can you charge higher rent to make up for the power bill discount?  Do tenants seek those out?

Just remember it's all well and good until it isn't.  Have some cash set up for when things go south.  They will at some point and you don't want to get caught holding the bag.  When it goes south, everything seems to go south all at the same time.  Properties take longer to rent, rent stagnates or deflates, credit dries up, banks tighter on loan rules, credit cards decrease credit lines, your credit score drops because instead of 30% utilization you overnight go to 50-80-100% when they drop your credit line, hard money dries up for flips, stock market goes down and you don't want to take losses or can't use margin.   Real estate is cyclical, stay in long enough and you will go thru a cycle.  Have enough resources so you can hit the other side of the cycle.

See what is happening the CRE investors right now in many cities.

 Bolded for truth. People evaluate risk as if only 10-25, maybe 33 percent of their portfolio can get hampered at once.No, just no. That **** comes at once, and it takes you straight down with it. 

There's no value at risk metric for real estate besides your fixed rate debt and obligatory physical expenses to maintain the house. These subto transactions from my understanding are pretty much paper assumptions, with little equity and a complete exposure to physical risk, original buyer risk, and lender risk. Why enter these? I get the rate to assume, it's very attractive. But not attractive enough to wear the risk. 

Not sure if I'm understanding how it would be any riskier than buying traditional route, the difference is these deals the renter pays for your expenses where if you buy traditional you'll be negative cashflow right now, traditional seems riskier. And not buying anything because it is to expensive is the riskiest. These properties will double in value and have a ton of equity with enough time as rents go up, as depriciation, as principal pay down at a much higher clip. 

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

I would have to sell the property or come out of pocket to pay for it. Same thing as if I bought the traditional way, not sure I get the point. If this is your mindset why invest in real estate at all? 

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

 If tenants stop paying we are in big trouble regardless of how you purchased. Unless you are putting 30% down. I wouldn't invest in real estate if you worried about that. Luckily I am mostly invested in a state that is still Landlord friendly and it is easy to remove tenants that stop paying. By the time that happens if ever the properties I purchased will likely be worth a lot more but I can't say that for sure. Its a risk I'm willing to tolerate again because my wraps are generating a nice cashflow with no money into the deal. 

My point was in regards to your little saying. With tenants not paying, your little equity comes & goes as long as it cash flows saying is out the window. Not about it being related to subto, seller finance, or conventional, or dscrd. So folks who press on cash flow and to a point that it's the only thing that matters--commonly miss the forest for the trees. 

If your tenants stop paying it's likely your house value will be dropping too, this comes in unison and at a grand scale. Now by that point has appreciation taken off enough to off-set? I hope so, but I think this turn will be a lot different than the last 10-12 years.

I'm still a big bettor that inventory changes, when rates drop, and this is going to cause the correction. 

Cash-Flow is NOT an input, it is a RESULT. 

A RESULT of current market revenue viability, maintenance and cap-x standings, operational expense's. 

Expenses such as insurance, tax's.... 

Thus; Cash-Flow is the WEAKEST metric of use because it is CHANGABLE. It is NOT a constant, and it's movement is NOT fully controllable. I'd argue at best one can influence, not control, expenses. 

So "IF" one argues there "safe" because of Cash-Flow, and that is say 10% of gross revenues, for example $240 per mnth net on a $2,400 rent.....    That means "IF" market rent's compress just 10%, you're Cash-Flow is GONE. 15% your in the red..... 

Cash-Flow is NOT a constant, I can't stress this SIMPLE fact enough. And it seems way too many are high on hopeium with some notion that Cash-Flow from "A" point in time is a universal forward-cast of permeance. 

Furnace breaks, pow there is your net for next year, 2, gone. Water heater, carpet replacement, etc etc.. Cash-Flow is a HOPE, not a fact. 

STR is a great example of this. Many STR's had great Cash-Flow, until they didn't. Operators changed nothing, property is as it always was, but the market changed and revenues collapsed, and with it cash-flow. Those with equity had options to pivot upon. Those without....

They need to fix the saying

Cash flow comes and goes, the location is forever. 

I won't object to that. 

[Andrew McGuire]

Quote from @Steve K.:

Apologies as I have not read all the replies. I remember in 2012 I had a friend jump on a plane with a suitcase full of cash to buy up properties in Phoenix for 50% of what they had been worth in 2008. He doubled his money when the market recovered. That’s the only way I’d buy property there, no way would I pay more than current market value at the tippy-top of the market cycle in a classic boom/bust location. Add in the sub2 shenanigans and it just gets even uglier, potentially. Odd strategy IMO but good luck, I hope it works out for you. 

 Thanks Steve, I have infinity return since when I wrap the properties I am getting more than the down payment I am putting in. Each leaves a cashflow unlike anything I buy traditionally, I am using the cashflow to buy other rentals and make the payment with the wrap cashflow. Not sure why it matters what home values are as long as I am bringing in heavy cashflow. 

[Steve K.]

Quote from @Andrew McGuire:

Quote from @Steve K.:

Apologies as I have not read all the replies. I remember in 2012 I had a friend jump on a plane with a suitcase full of cash to buy up properties in Phoenix for 50% of what they had been worth in 2008. He doubled his money when the market recovered. That’s the only way I’d buy property there, no way would I pay more than current market value at the tippy-top of the market cycle in a classic boom/bust location. Add in the sub2 shenanigans and it just gets even uglier, potentially. Odd strategy IMO but good luck, I hope it works out for you. 

 Thanks Steve, I have infinity return since when I wrap the properties I am getting more than the down payment I am putting in. Each leaves a cashflow unlike anything I buy traditionally, I am using the cashflow to buy other rentals and make the payment with the wrap cashflow. Not sure why it matters what home values are as long as I am bringing in heavy cashflow. 

Sounds like an infinitely bad idea when the property is worth half what you paid and the tenant stops paying , then sues you. But good luck. The world needs people like you so the rest of us can get good deals. 

[Don Konipol]

Well, we’ve got a little of everything in this forum.  Unfortunately, a lot of posters emit personal hostility when others disagree with their analysis, or especially when they’re called out for posting incorrect legal  information.  Conclusions are opinion, legal information is a fact.  If you’re factually wrong the you should just admit it; don’t double down by attacking the messenger.  Hey, there’s a reason some are successful investors and others are salespeople. 

There are two separate but at least partially related questions here. 
1. Strategy of giving up equity to gain cash flow. This is a math problem, but requires a projection of future prices.  A lot like most discounted cash flow analysis, but perhaps somewhat more risky.  Here’s my personal opinion, it’s much riskier than the OP wants to acknowledge, but not necessarily a bad strategy like the “anti” crowd states.  In other words need to know if the return is so good that it accounts for the excessive risk.  Btw, you don’t get rich without risk.  You do have to find ways to “contain” the risk.  Subject for another post.

2. Subject to - So, the question in my opinion is not is sub to good or bad; to me it is a legitimate method of purchasing property.  The question is, is the OP utilizing sub to in a way that provides maximum protection for both the seller and himself? Or is he building a house of cards that will come crashing down with a 10% market correction?  The truth is we don’t have enough information to reach a conclusion.  But it sure sounds like reaching out to do all the sub to deals you can while piling up negative equity doing it has the POTENTIAL for disaster.  What we don’t know that could mitigate these outsize risks are 

1- keeping a large amount of cash in reserve 

2- having a large line of credit 

3- having other sources of continuous cash flow

4- having expertise and experience in surviving economic downturns

5 - having the mindset to make the payments on the properties NO MATTER WHAT.

There’s also another aspect at play here. I don’t know anything about the OP personal financial situation, so this will be hypothetical.  An investor with almost no net worth and little to lose, may believe that they, personally don’t have much risk. If the deals continue to cash flow they’re golden; if the deals go south and alligators appear on the horizon they walk. leaving the original sellers holding the bag.  Again, not saying this is in any way, shape or form indicative of the OP, just saying that in this type of situation it CAN exist. 

[Jay Hinrichs]

Quote from @Don Konipol:

Well, we’ve got a little of everything in this forum.  Unfortunately, a lot of posters emit personal hostility when others disagree with their analysis, or especially when they’re called out for posting incorrect legal  information.  Conclusions are opinion, legal information is a fact.  If you’re factually wrong the you should just admit it; don’t double down by attacking the messenger.  Hey, there’s a reason some are successful investors and others are salespeople. 

There are two separate but at least partially related questions here. 
1. Strategy of giving up equity to gain cash flow. This is a math problem, but requires a projection of future prices.  A lot like most discounted cash flow analysis, but perhaps somewhat more risky.  Here’s my personal opinion, it’s much riskier than the OP wants to acknowledge, but not necessarily a bad strategy like the “anti” crowd states.  In other words need to know if the return is so good that it accounts for the excessive risk.  Btw, you don’t get rich without risk.  You do have to find ways to “contain” the risk.  Subject for another post.

2. Subject to - So, the question in my opinion is not is sub to good or bad; to me it is a legitimate method of purchasing property.  The question is, is the OP utilizing sub to in a way that provides maximum protection for both the seller and himself? Or is he building a house of cards that will come crashing down with a 10% market correction?  The truth is we don’t have enough information to reach a conclusion.  But it sure sounds like reaching out to do all the sub to deals you can while piling up negative equity doing it has the POTENTIAL for disaster.  What we don’t know that could mitigate these outsize risks are 

1- keeping a large amount of cash in reserve 

2- having a large line of credit 

3- having other sources of continuous cash flow

4- having expertise and experience in surviving economic downturns

5 - having the mindset to make the payments on the properties NO MATTER WHAT.

There’s also another aspect at play here. I don’t know anything about the OP personal financial situation, so this will be hypothetical.  An investor with almost no net worth and little to lose, may believe that they, personally don’t have much risk. If the deals continue to cash flow they’re golden; if the deals go south and alligators appear on the horizon they walk. leaving the original sellers holding the bag.  Again, not saying this is in any way, shape or form indicative of the OP, just saying that in this type of situation it CAN exist. 

Exactly Don..  huge reserves and current and future income by the OP will mitigate the risk without those two things its a roll of the dice.. every one pays on time every time no worries. Wrap buyers start defaulting and well then you have the house of cards that can only be mitigated by a very strong financial position in both cash and credit.

The strategy which has been laid out by the sub 2 guys before they got booted off the site is just this.  Although I don't think they even advocated buying negative equity.. but its the infinite return aspect of this that is the big draw as well.. Wrap buyer gives you all the cash you invested in the property back when they buy then you make the delta on the spread.. for sure this mathematically works.. Just need to prepare for when/if they default.. properly capitalized company no issue .. investor with limited resources high risk.

[Joe S.]

Quote from @Don Konipol:

Well, we’ve got a little of everything in this forum.  Unfortunately, a lot of posters emit personal hostility when others disagree with their analysis, or especially when they’re called out for posting incorrect legal  information.  Conclusions are opinion, legal information is a fact.  If you’re factually wrong the you should just admit it; don’t double down by attacking the messenger.  Hey, there’s a reason some are successful investors and others are salespeople. 

There are two separate but at least partially related questions here. 
1. Strategy of giving up equity to gain cash flow. This is a math problem, but requires a projection of future prices.  A lot like most discounted cash flow analysis, but perhaps somewhat more risky.  Here’s my personal opinion, it’s much riskier than the OP wants to acknowledge, but not necessarily a bad strategy like the “anti” crowd states.  In other words need to know if the return is so good that it accounts for the excessive risk.  Btw, you don’t get rich without risk.  You do have to find ways to “contain” the risk.  Subject for another post.

2. Subject to - So, the question in my opinion is not is sub to good or bad; to me it is a legitimate method of purchasing property.  The question is, is the OP utilizing sub to in a way that provides maximum protection for both the seller and himself? Or is he building a house of cards that will come crashing down with a 10% market correction?  The truth is we don’t have enough information to reach a conclusion.  But it sure sounds like reaching out to do all the sub to deals you can while piling up negative equity doing it has the POTENTIAL for disaster.  What we don’t know that could mitigate these outsize risks are 

1- keeping a large amount of cash in reserve 

2- having a large line of credit 

3- having other sources of continuous cash flow

4- having expertise and experience in surviving economic downturns

5 - having the mindset to make the payments on the properties NO MATTER WHAT.

There’s also another aspect at play here. I don’t know anything about the OP personal financial situation, so this will be hypothetical.  An investor with almost no net worth and little to lose, may believe that they, personally don’t have much risk. If the deals continue to cash flow they’re golden; if the deals go south and alligators appear on the horizon they walk. leaving the original sellers holding the bag.  Again, not saying this is in any way, shape or form indicative of the OP, just saying that in this type of situation it CAN exist. 

 If I could write as good as you I would be the author of a book or ten… 

[James Hamling]

Quote from @Don Konipol:

Well, we’ve got a little of everything in this forum.  Unfortunately, a lot of posters emit personal hostility when others disagree with their analysis, or especially when they’re called out for posting incorrect legal  information.  Conclusions are opinion, legal information is a fact.  If you’re factually wrong the you should just admit it; don’t double down by attacking the messenger.  Hey, there’s a reason some are successful investors and others are salespeople. 

There are two separate but at least partially related questions here. 
1. Strategy of giving up equity to gain cash flow. This is a math problem, but requires a projection of future prices.  A lot like most discounted cash flow analysis, but perhaps somewhat more risky.  Here’s my personal opinion, it’s much riskier than the OP wants to acknowledge, but not necessarily a bad strategy like the “anti” crowd states.  In other words need to know if the return is so good that it accounts for the excessive risk.  Btw, you don’t get rich without risk.  You do have to find ways to “contain” the risk.  Subject for another post.

2. Subject to - So, the question in my opinion is not is sub to good or bad; to me it is a legitimate method of purchasing property.  The question is, is the OP utilizing sub to in a way that provides maximum protection for both the seller and himself? Or is he building a house of cards that will come crashing down with a 10% market correction?  The truth is we don’t have enough information to reach a conclusion.  But it sure sounds like reaching out to do all the sub to deals you can while piling up negative equity doing it has the POTENTIAL for disaster.  What we don’t know that could mitigate these outsize risks are 

1- keeping a large amount of cash in reserve 

2- having a large line of credit 

3- having other sources of continuous cash flow

4- having expertise and experience in surviving economic downturns

5 - having the mindset to make the payments on the properties NO MATTER WHAT.

There’s also another aspect at play here. I don’t know anything about the OP personal financial situation, so this will be hypothetical.  An investor with almost no net worth and little to lose, may believe that they, personally don’t have much risk. If the deals continue to cash flow they’re golden; if the deals go south and alligators appear on the horizon they walk. leaving the original sellers holding the bag.  Again, not saying this is in any way, shape or form indicative of the OP, just saying that in this type of situation it CAN exist. 

Very well said, excellent really. 

And when comes to SubTo, this is the kind of clarity that is far too often lacking, hence my disdain for virtually everything SubTo, because I've been conditioned by the avalanche of wildly insane promotions to the "dark side" of such. 

[V.G Jason]

If you're going to follow all those points, why buy subject to?

You're literally going to keep cash aside against the tail risk it presents. Why not just invest safely?

I'm confused.