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 @Dan H.:

Quote from @Andrew McGuire:

Quote from @Kristine Ann:

@Jay Hinrichs Ah, the sub to guys, yeah.  They are very cringe.  "Subject to" is more of a wholesaler thing preying on vulnerable populations, though, isn't it?  This sounds more above board.

I've actually started seeing assumable mortgages being marketed with normal listings recently. I was wondering how it worked in practice.  A 3-3.5% mortgage would be a huge selling point. 

So by preying you mean stopping foreclosures and helping people sell who have no other option that got sick, lost a job, have to sell for another reason? 

 Reply would be as appropriate for wholesaler as sub to, maybe more so.   

I have offered sub to, so I do not want to come across against sub to.   But the seller is taking on substantial risk compared to traditional sales.  If the buyer is starting with negative equity, the risk is even larger.  

Normally the buyer in these do not have significant risk, but in the case of negative equity if the loan gets called, the buyer is more screwed than normal.  There will be no way to finance at high percentage of what is owed due to in effect buying the sub to position.  Buyer either brings a large pot of money but to what end? Or they let foreclosure.  Buyer is out effort.  Seller is out house and credit impacted for years. 

Others means to start is OO FHA at 96.5% or non FHA at 95%. NACA another OO option. Or find good BRRRR that allows extraction of all or near all investment. There are options for those starting out other than over paying to purchase a sub to.

RE investors should strive to pay less than market price not greater than market price.  The goal is not to own units, the goal is to make money.  

Good luck

What is seller really risking when they are headed to a foreclosure or have health problems and no way to keep up payments, they don't have equity so they can't sell because they are upside down. I don't see the risk. 

I've had a note get called and still hold the property through agreement for Sale, we moved Deed back to seller to satisfy bank and I'm keeping up paymetns. 

Most of the sellers I've purchased form are low down payment loans and they can't keep up payments or sell in a positive position, so I don't FHA or low down payments are a solution. I've also done a BRRRR which ended up being a BRRR(D), the D stands for disaster. To this day I have 200K sitting in the property and it doesn't cashflow, way riskier strategy especially when you are new and inexperienced in rehabbing.

I do agree with you on goal is making money, this is exactly why I'm buying at low interest rates and selling at higher rates (wrap). They pay for themselves today opposite of buying at a high interest ratre with little down. 

[Chris Seveney]

Agree

People are paying money to learn to overpay for real estate, put little to no money down and have no reserves and think it’s all good

Similar thing happened in the multifamily space with a certain guru teaching people to buy Mf and raise $ and how did that work at for those newbies?

Moment raised raised on this short term debt all those dreams were smashed, same is going to hold true in 18-24 months on residential side as well.

[Andrew McGuire]

Quote from @Joe S.:

@Andrew McGuire

I am not here to promote or denounce your above method of choice. I'm not sure if you have been on Bigger Pockets for a long time or not. My first account that I had several years ago before I closed it I discovered that creative finance as for as Sub2 was frowned on by Bigger Pockets members. There's obviously reasons that such a method could be abused in the wrong hands. (Why in the world Bigger Pockets did a book with Pace Morby is totally oxymoron from the position they used to be at.??????)
With that being said, unless you’re trying to promote somebody’s Sub2 training or gather folks for your own training, there’s some things that you don’t come on Bigger Pockets bragging about. ( IMO)

I guess you see that now??  Just saying some times it’s best for people to avoid the bragging especially on certain topics.

Even if you did hold the golden key to success what would cause you to want to create your own competition unless you was trying to sell some program, mentorship, or some other benefit from doing so? If you’re not trying to sell this particular method for some personal gain, you would gain more by simply keeping some things to yourself. 

P.S I bought some properties over the years Sub2, but you don't see me on Bigger Pockets running my big mouth bragging about it. Lol.😂

Joe, 

Your a smart guy, I now see why you don't lol. I absolutely do coaching, mostly for agents that are getting killed in this market when I'm growing quickly, I went to my awards banket for my broker recently. The room was empty and had no energy compared to the previous year, it was sad to see so many agents fold up shop but will help the ones that remain in business. 

2nd motivator is this post is I know people from Bigger Pockets that have not purchased a property in 3 years is when we had our first conversation, they are sitting and doing nothing because rates or prices oh my. I keep telling them what do you think is going to happen when and if rates drop, prices are going to go up is my guess, I would rather own 20 properties unlike that person who owns none. They frusturate me 

[Andrew McGuire]

Quote from @Shiloh Lundahl:

@Andrew McGuire You have gotten some good feed back from experienced investors. I would encourage you to consider their feed back really well.  

Buying properties over market value because you are able to have a low locked in interest rate may seem like a good idea because you may be able to cash flow a few hundred dollars right now.  They are risks to this strategy that can be mitigated through education and capital reserves. 

I would say doing this strategy though may be a slow process because you are missing out on one of the biggest money makers in real estate which is capital gains.  You will just have to wait a long time before you can realize a significant gain from these properties.  For instance, if you buy the property valued at 375k but you are buying it for 390k, even with a low interest rate, let's say you make $500 a month in cash flow.  In a year, let's say the property is valued at 390k and you made $6000 in cash flow.  So you would be about breaking even after the closing costs when you bought it.  Over the next 2 years let's say you brought in about $12,000 in cash flow and the property has increased value to $415,000.  If you wanted to sell it in 3 years, then the majority of your gain would go to paying the closing costs for the sale, so maybe you are $10,000 - $15,000 ahead.  That is a lot of work for that amount of money.  

What if you are able to buy the same house in San Tan Valley for $300,000 that needs about 20k in repairs to value at 375k.  In 3 years, the property goes up to 415k but you only owe 320k and when you sell it you net around 70k.  So even though you may not have cash flowed much on it, you were able to realize a 70k gain within a few years.

Shiloh, 

I've seen and heard about your work being in the same city. I know you do great work and take care of people. 

I agree with you 100% on making money on the gains, especially in our city. I am for clarity not banking on the cashflow, they barely make any money at all but at least they pay for themselves and have some pretty cool other benefits like great principal pay down and depreciation. My strategy is not to get wealthy through cashflow, it is to own many properties that pay for themselves and when prices go up as they will in a matter of time, I will make my money there. 

I would love to do what you mention above and purchase under market value, I've tried BRRRR and buying fixers a couple of times and failed miserably, lost money on both deals. To me this is a way riskier strategy, but I know it is because of my own lack of skillset in that strategy. My skillset today is finding failed listings, who want little money down, that pay for themselves I keep or I wholesale/list and make some cash. I cherry pick the very best ones and started wrapping to create a positive cashflow stream. This is for now if rates go back down I will certainly buy/flip/hold the traditional way again.

[Andrew McGuire]

Quote from @Eric James:

Quote from @Andrew McGuire:

Quote from @Eric James:

I too want to continue accumulating rental real estate. But to continue getting financing that means my properties need to cover 30% above expenses. That means positive cash flow.is a must if I want to keep growing. I can't break even and just pay down the debt to increase my equity.

 Yeah that's the tough thing wanting to invest right now, properties were lucky to cashflow a few years ago when rates were 3-4%, now that they are 7+ that has added an additional 30% or so expenses assuming your not putting 30% or more down. Deals don't make sense unless you do something crazy like put 8 students in a single family :) 

 Yes I spoke with my local bak loan officer the other day and he said they are doing zero loans to finance purchase of rentals right now because the numbers don't work. 

I'm doing my own version of BRRR. Build (for 65% of value), Rent, Refinance and Repeat.

 Man if you can build for 65% that seems like a deal to me. Congrats, lets do a deal. 

[Andrew McGuire]

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

I hear you on the commercial side, generally speaking way more people are moving here than homes being built. Yes we are all in trouble if people stop paying but if that's the case why would anyone invest in Real Estate at all. Part of what I'm doing is buying properties at low interest rates selling them at high interest rates (mortgage wrap), getting all of my down payment back and left with a cashflowing property. As many have warned I keep a healthy reserve, the likelihood all of my wrap buyers and renters stop paying by the masses is a risk I'm willing to accept since doing nothing is much riskier in my opinion. By doing nothing I mean not investing in RE at all like some of the buyers I work with who have been saying they want to buy a property for the last 3 years but nothing pencils out in our city with 7+ rates. 

 since we are having a nice dialogue here . this is a real scenario that actually happened to this company in Portland that I helped bail out.  they did as I mentioned about 35 of these and of course there was little to no equity but unlike yours of negative equity theirs was just No equity basically and they figured 200.00 a month positive and boom they buy 50 and now they are living large on the 10k a month positive..

Well first one fails and of course they have transferred title or recorded the lease option. Being subprime these folks then squat they don't just hand the keys back. so now the first one is negative and well they can gut through that but the foreclosure is now 3 to 4k.. Bottom line it took 15% of their deals to go south for them to tip over.. they could not make any payments and had no cash left from the downpayments folks made.. so now there are lates going to the folks they bought from.. those people lawyer up and a few went to the AG.. That was about the time they found me. I helped them with the sellers ( got on the phone) and because some of them actually had equity day one I took those for my fee's.. bottom line though they got wiped out I basically kept them out of major litigation and potential real mess with the AG.. I know a few other folks that did this and it went very wrong and they got criminally indited and sent to prison..  Now i am not saying this would happen to you but you run that risk if you pocket the money and dont pay the underlying.

When i did sub too wraps keep in mind we were very well capitalize other wise i would never have done this.. I had a 5,000,000 unsecrued LOC and a 10,000,000 secured.. So could pay off the underlyings at anytime and then move them to my secured line while I stabilized and resold. There was no way I was going to buy 100 of these and take on 20 million of other peoples debt without clear cut back up plan that included instant paying of their mortgage while i worked it out..

Plus as I stated I never bought anything without at least 20% equity day one..

These are the risks to your plan.. if you have 100s of thousands liquid to take care of these thats one thing but once you sell on the wrap you just backed yourself into another corner you cant refi your only way to protect the seller is to pay their payment or if the bank calls the loan Cut a check to pay it off.. Are you able to cut a check to pay any of these off ??  thats the risk.

then like a few of these other actors if it goes bad and the sellers you bought from go ballistic you will get turned into the DRE and probably other agencies and you never know it they take an interest in you or just give you a pass.

If it was me and your not really well capitalized I would not be changing title to a wrap buyer and losing control this could end up very poorly for you.. Just like the sellers selling to you they take on a very huge risk that you can actually execute over the long haul very few can.

so anyway things to think about.. 

This all makes sense and can understand your experience on it, makes sense to me. Only think I can say is this is why I don't invest in Portland and most of the buyers I work with are coming from blue states. I've always thought as long as they cashflow or at minimum pay for themselves I'll be okay but if a large number of them stopped paying would be trouble. If one or two for now stopped I would force them out and resale the property, I don't want to do that of course. 

[Jay Hinrichs]

Quote from @Andrew McGuire:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

I hear you on the commercial side, generally speaking way more people are moving here than homes being built. Yes we are all in trouble if people stop paying but if that's the case why would anyone invest in Real Estate at all. Part of what I'm doing is buying properties at low interest rates selling them at high interest rates (mortgage wrap), getting all of my down payment back and left with a cashflowing property. As many have warned I keep a healthy reserve, the likelihood all of my wrap buyers and renters stop paying by the masses is a risk I'm willing to accept since doing nothing is much riskier in my opinion. By doing nothing I mean not investing in RE at all like some of the buyers I work with who have been saying they want to buy a property for the last 3 years but nothing pencils out in our city with 7+ rates. 

 since we are having a nice dialogue here . this is a real scenario that actually happened to this company in Portland that I helped bail out.  they did as I mentioned about 35 of these and of course there was little to no equity but unlike yours of negative equity theirs was just No equity basically and they figured 200.00 a month positive and boom they buy 50 and now they are living large on the 10k a month positive..

Well first one fails and of course they have transferred title or recorded the lease option. Being subprime these folks then squat they don't just hand the keys back. so now the first one is negative and well they can gut through that but the foreclosure is now 3 to 4k.. Bottom line it took 15% of their deals to go south for them to tip over.. they could not make any payments and had no cash left from the downpayments folks made.. so now there are lates going to the folks they bought from.. those people lawyer up and a few went to the AG.. That was about the time they found me. I helped them with the sellers ( got on the phone) and because some of them actually had equity day one I took those for my fee's.. bottom line though they got wiped out I basically kept them out of major litigation and potential real mess with the AG.. I know a few other folks that did this and it went very wrong and they got criminally indited and sent to prison..  Now i am not saying this would happen to you but you run that risk if you pocket the money and dont pay the underlying.

When i did sub too wraps keep in mind we were very well capitalize other wise i would never have done this.. I had a 5,000,000 unsecrued LOC and a 10,000,000 secured.. So could pay off the underlyings at anytime and then move them to my secured line while I stabilized and resold. There was no way I was going to buy 100 of these and take on 20 million of other peoples debt without clear cut back up plan that included instant paying of their mortgage while i worked it out..

Plus as I stated I never bought anything without at least 20% equity day one..

These are the risks to your plan.. if you have 100s of thousands liquid to take care of these thats one thing but once you sell on the wrap you just backed yourself into another corner you cant refi your only way to protect the seller is to pay their payment or if the bank calls the loan Cut a check to pay it off.. Are you able to cut a check to pay any of these off ??  thats the risk.

then like a few of these other actors if it goes bad and the sellers you bought from go ballistic you will get turned into the DRE and probably other agencies and you never know it they take an interest in you or just give you a pass.

If it was me and your not really well capitalized I would not be changing title to a wrap buyer and losing control this could end up very poorly for you.. Just like the sellers selling to you they take on a very huge risk that you can actually execute over the long haul very few can.

so anyway things to think about.. 

This all makes sense and can understand your experience on it, makes sense to me. Only think I can say is this is why I don't invest in Portland and most of the buyers I work with are coming from blue states. I've always thought as long as they cashflow or at minimum pay for themselves I'll be okay but if a large number of them stopped paying would be trouble. If one or two for now stopped I would force them out and resale the property, I don't want to do that of course. 

I don’t own rentals in Portland either   We are new home builders and we supply funding for Rehabbers. Own a few rentals now did own over 300 at one time. Partners bought me out.  I leave landlording to others :)   

[Eric James]

Quote from @Andrew McGuire:

Quote from @Eric James:

Quote from @Andrew McGuire:

Quote from @Eric James:

I too want to continue accumulating rental real estate. But to continue getting financing that means my properties need to cover 30% above expenses. That means positive cash flow.is a must if I want to keep growing. I can't break even and just pay down the debt to increase my equity.

 Yeah that's the tough thing wanting to invest right now, properties were lucky to cashflow a few years ago when rates were 3-4%, now that they are 7+ that has added an additional 30% or so expenses assuming your not putting 30% or more down. Deals don't make sense unless you do something crazy like put 8 students in a single family :) 

 Yes I spoke with my local bak loan officer the other day and he said they are doing zero loans to finance purchase of rentals right now because the numbers don't work. 

I'm doing my own version of BRRR. Build (for 65% of value), Rent, Refinance and Repeat.

 Man if you can build for 65% that seems like a deal to me. Congrats, lets do a deal. 

 I build outside of city limits in TX. No permitting (other than septic) or inspections. Employ and supervise my own construction crew. Building small apartment buildings for $80/square foot.

[V.G Jason]

Quote from @Chris Seveney:

Agree

People are paying money to learn to overpay for real estate, put little to no money down and have no reserves and think it’s all good

Similar thing happened in the multifamily space with a certain guru teaching people to buy Mf and raise $ and how did that work at for those newbies?

Moment raised raised on this short term debt all those dreams were smashed, same is going to hold true in 18-24 months on residential side as well.

The residential side has been hearing this for over 15 months now. The chickens do take a little more time to roost, but we're not going to see the residential side get smashed. It's just going to take a little correcting; I doubt any worse than the true bottom of Q4 2022. Markets these days are way more vicious and V like, not linear movements. But are short-lived, as in will take less than 2 quarters to rectify. 

Arlington, VA. 3yr & 5yr look.
Bottom I think was Q4 2022. Do we see prices crashing south of $550k? Right now it's $772k, I can see it getting up to $800k then falling to low $600s. I think the floor has already been set, and it was the knee-jerk reaction to the climb of rates back in H2 '22. 

Boston, MA. It trades with way tighter bands.

Pre-covid was high 600s, right now it's high 700s. What's the anticipated free fall for this? It'll have way too much support to really tank.

Savannah, GA. Way more linear growth, and it's that way cause look at the barrier of entry. Half of two examples above and about 15-20% lower than national median.

For desirable cities, there'll always be demand. Add the fact in a low COL due to no real prime industry, what's the floor here? If you told me 10-15% sure. 30%? There'd be way too much support. Lots of capital steps out of other areas to invest in Savannah at $250k median price level. 

[Andrew McGuire]

Quote from @V.G Jason:

Quote from @Chris Seveney:

Agree

People are paying money to learn to overpay for real estate, put little to no money down and have no reserves and think it’s all good

Similar thing happened in the multifamily space with a certain guru teaching people to buy Mf and raise $ and how did that work at for those newbies?

Moment raised raised on this short term debt all those dreams were smashed, same is going to hold true in 18-24 months on residential side as well.

The residential side has been hearing this for over 15 months now. The chickens do take a little more time to roost, but we're not going to see the residential side get smashed. It's just going to take a little correcting; I doubt any worse than the true bottom of Q4 2022. Markets these days are way more vicious and V like, not linear movements. But are short-lived, as in will take less than 2 quarters to rectify. 

Arlington, VA. 3yr & 5yr look.
Bottom I think was Q4 2022. Do we see prices crashing south of $550k? Right now it's $772k, I can see it getting up to $800k then falling to low $600s. I think the floor has already been set, and it was the knee-jerk reaction to the climb of rates back in H2 '22. 

Boston, MA. It trades with way tighter bands.

Pre-covid was high 600s, right now it's high 700s. What's the anticipated free fall for this? It'll have way too much support to really tank.

Savannah, GA. Way more linear growth, and it's that way cause look at the barrier of entry. Half of two examples above and about 15-20% lower than national median.

For desirable cities, there'll always be demand. Add the fact in a low COL due to no real prime industry, what's the floor here? If you told me 10-15% sure. 30%? There'd be way too much support. Lots of capital steps out of other areas to invest in Savannah at $250k median price level. 

 Great data, I'm with you. I am bullish on my city and believe there is pent up demand. I think prices will go crazy again if rates ever come back down under 5. 

[Chris Seveney]

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Chris Seveney:

Agree

People are paying money to learn to overpay for real estate, put little to no money down and have no reserves and think it’s all good

Similar thing happened in the multifamily space with a certain guru teaching people to buy Mf and raise $ and how did that work at for those newbies?

Moment raised raised on this short term debt all those dreams were smashed, same is going to hold true in 18-24 months on residential side as well.

The residential side has been hearing this for over 15 months now. The chickens do take a little more time to roost, but we're not going to see the residential side get smashed. It's just going to take a little correcting; I doubt any worse than the true bottom of Q4 2022. Markets these days are way more vicious and V like, not linear movements. But are short-lived, as in will take less than 2 quarters to rectify. 

Arlington, VA. 3yr & 5yr look.
Bottom I think was Q4 2022. Do we see prices crashing south of $550k? Right now it's $772k, I can see it getting up to $800k then falling to low $600s. I think the floor has already been set, and it was the knee-jerk reaction to the climb of rates back in H2 '22. 

Boston, MA. It trades with way tighter bands.

Pre-covid was high 600s, right now it's high 700s. What's the anticipated free fall for this? It'll have way too much support to really tank.

Savannah, GA. Way more linear growth, and it's that way cause look at the barrier of entry. Half of two examples above and about 15-20% lower than national median.

For desirable cities, there'll always be demand. Add the fact in a low COL due to no real prime industry, what's the floor here? If you told me 10-15% sure. 30%? There'd be way too much support. Lots of capital steps out of other areas to invest in Savannah at $250k median price level. 

 Great data, I'm with you. I am bullish on my city and believe there is pent up demand. I think prices will go crazy again if rates ever come back down under 5. 

 What data supports that? Do you see an influx in wage earnings? Do you see banks being flush with cash on their deposits and balance sheet? 

What is the median salary in the area you are investing in compared to the average home price? 

I recommend reviewing this:

Slide 1 (newyorkfed.org)

[Guy Gimenez]

Most everyone is excited about investing...until the realities hit them squarely in the face. I've seen this kind of stuff posted for more than two decades and still can't believe that folks think it's a good idea. I truly hope it works out for you. I am all but certain it won't. Way too many red flags that "excitement" won't fix. 

[V.G Jason]

Quote from @Andrew McGuire:

Quote from @V.G Jason:

Quote from @Chris Seveney:

Agree

People are paying money to learn to overpay for real estate, put little to no money down and have no reserves and think it’s all good

Similar thing happened in the multifamily space with a certain guru teaching people to buy Mf and raise $ and how did that work at for those newbies?

Moment raised raised on this short term debt all those dreams were smashed, same is going to hold true in 18-24 months on residential side as well.

The residential side has been hearing this for over 15 months now. The chickens do take a little more time to roost, but we're not going to see the residential side get smashed. It's just going to take a little correcting; I doubt any worse than the true bottom of Q4 2022. Markets these days are way more vicious and V like, not linear movements. But are short-lived, as in will take less than 2 quarters to rectify. 

Arlington, VA. 3yr & 5yr look.
Bottom I think was Q4 2022. Do we see prices crashing south of $550k? Right now it's $772k, I can see it getting up to $800k then falling to low $600s. I think the floor has already been set, and it was the knee-jerk reaction to the climb of rates back in H2 '22. 

Boston, MA. It trades with way tighter bands.

Pre-covid was high 600s, right now it's high 700s. What's the anticipated free fall for this? It'll have way too much support to really tank.

Savannah, GA. Way more linear growth, and it's that way cause look at the barrier of entry. Half of two examples above and about 15-20% lower than national median.

For desirable cities, there'll always be demand. Add the fact in a low COL due to no real prime industry, what's the floor here? If you told me 10-15% sure. 30%? There'd be way too much support. Lots of capital steps out of other areas to invest in Savannah at $250k median price level. 

 Great data, I'm with you. I am bullish on my city and believe there is pent up demand. I think prices will go crazy again if rates ever come back down under 5. 

That's not what I am saying.

Just because the support is strong, doesn't mean the resistance is far ahead. Not at all, that's not synonymous. 

Put this into perspective, back in Dec23 when rates dipped mortgage apps skyrocketed. 2 of my 3 lenders said they had more apps in Dec23 than Apr23-Nov23 combined. Do you know how many qualify usually when they apply? 80%+. Do you know how many qualified this go around in Dec23? Sub 60%.  Demand is irrelevant; qualified demand is everything. Becky & Bill can put an app in, but if their income has been flat for the last 2 years, their cash reserves for a house has gone down to living expenses, and house prices have gone up 5-10% last 2 years then they still cannot qualify. 

What Chris is stating is more going to be case, I don't think a smash just a 10-15% ish correction. So anyone thinking short-term appreciation, or i'll re-fi in a couple of years, or is doing this with limited liquidity will get royally screwed. It's a small % of the market so I don't think it causes a cascade or domino impact on the overall one. Seller finance, those 2.99% 2 yr re fi deals that TK provider did, subto, etc. is going to be the one's marginalized.

Other pockets are folks that are underwriting rent increase for the next 3-5 years akin to the last 3-5. We'll see rent be 2% to -5% maybe even lower, as wages go up 1-3%. So the wage:rent ratio will tighten, and eventually rent to price will be not as terrible but still pretty miserable. America's median income:price ratio could be worse so to say it can't be is not true. 

[Scott Trench]

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

[Jay Hinrichs]

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

Scott, this is a valid point.. And that is why when this thread first started I mentioned I would never buy without 20% or more equity day one.. we did most of our sub 2 as foreclosure rescues but we also RARELY held them more that 9 to 18 months.  Or if we were going to keep them we moved them over to our LOC ..  That was part of the bargain with those we rescued IE we will pay your debt off so they can move on with no mortgage still on their fico..  

Bottom line trying to do these for LOOOONG term holds there is just too many things that can and will come up over time..

[V.G Jason]

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

[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.

[Alan F.]

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

[V.G Jason]

Quote from @Alan F.:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

 So pretty much where we are except for the technical unemployment numbers? Continued stagflation and something will undeniably break. Likely the S&P companies that are just too levered. 

And I think the Fed will push it this way and the only doubt I have is the influence of the election. That doubt is strong though. 

I also have a very different view on if rates do come down. I think real estate has a lot more seasonality than folks given attention to. If rates come down end of Q1, any Q1, you'll see prices rip for the prompt 1-12 weeks then dip and in Q4 really correct of that year. If rates go down at any other point, you'll see prices go up quickly in the 4-6 week span then come down. I really feel the rates are the reason inventory is low and once rates come down, we'll see inventory change.

Look at the same cities previously mentioned

Arlington, Savannah, and Boston

Once rates go down, inventory will increase in the long(er) term. Prices may rip in the shorter term, but I think inventory will go up. And buying power will change.

[Jay Hinrichs]

Quote from @V.G Jason:

Quote from @Alan F.:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

 So pretty much where we are except for the technical unemployment numbers? Continued stagflation and something will undeniably break. Likely the S&P companies that are just too levered. 

And I think the Fed will push it this way and the only doubt I have is the influence of the election. That doubt is strong though. 

I also have a very different view on if rates do come down. I think real estate has a lot more seasonality than folks given attention to. If rates come down end of Q1, any Q1, you'll see prices rip for the prompt 1-12 weeks then dip and in Q4 really correct of that year. If rates go down at any other point, you'll see prices go up quickly in the 4-6 week span then come down. I really feel the rates are the reason inventory is low and once rates come down, we'll see inventory change.

Look at the same cities previously mentioned

Arlington, Savannah, and Boston

Once rates go down, inventory will increase in the long(er) term. Prices may rip in the shorter term, but I think inventory will go up. And buying power will change.

rates go down inventory for sure will go up.. those that have been squatting on the current mortgages will now be more inclined to go ahead and sell .. and take on a new mortgage,, I know personally my wife wanted to move but I was not going to retire a 3 % mortgage and take on a 7%. Just not going to do it.. When rates first jumped we did lose half a dozen buyers that would have bought my new builds..

[V.G Jason]

Quote from @Jay Hinrichs:

Quote from @V.G Jason:

Quote from @Alan F.:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

 So pretty much where we are except for the technical unemployment numbers? Continued stagflation and something will undeniably break. Likely the S&P companies that are just too levered. 

And I think the Fed will push it this way and the only doubt I have is the influence of the election. That doubt is strong though. 

I also have a very different view on if rates do come down. I think real estate has a lot more seasonality than folks given attention to. If rates come down end of Q1, any Q1, you'll see prices rip for the prompt 1-12 weeks then dip and in Q4 really correct of that year. If rates go down at any other point, you'll see prices go up quickly in the 4-6 week span then come down. I really feel the rates are the reason inventory is low and once rates come down, we'll see inventory change.

Look at the same cities previously mentioned

Arlington, Savannah, and Boston

Once rates go down, inventory will increase in the long(er) term. Prices may rip in the shorter term, but I think inventory will go up. And buying power will change.

rates go down inventory for sure will go up.. those that have been squatting on the current mortgages will now be more inclined to go ahead and sell .. and take on a new mortgage,, I know personally my wife wanted to move but I was not going to retire a 3 % mortgage and take on a 7%. Just not going to do it.. When rates first jumped we did lose half a dozen buyers that would have bought my new builds..

100%.

The market is incredibly quick and vicious with it's response. What would've taken probably 18 months in yester-years happened in 5 months(in H2 22). Infact, the market is proactive and not even reactive these days in some areas. When/if rates go down, you'll get the hyper response up then I think smoothen out to trickle down once the inventory settles. 

Take a look at Boston. It's got 4.365 active listings, $775k median list. Precovid was $675k median list, at about 13k active listings(in 2019 on avg). Almost 1/3 the listings, yet only up $100k in these inflation years. I get the money printing, but the lack of supply was more detrimental to prices as was the supply chain more detrimental to inflation than anything else. 

Let rates come down, it's actually going to cause a supply rationalization. Not glut, but balance. And this is when correction will happen.

[Jay Hinrichs]

Quote from @V.G Jason:

Quote from @Jay Hinrichs:

Quote from @V.G Jason:

Quote from @Alan F.:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

 So pretty much where we are except for the technical unemployment numbers? Continued stagflation and something will undeniably break. Likely the S&P companies that are just too levered. 

And I think the Fed will push it this way and the only doubt I have is the influence of the election. That doubt is strong though. 

I also have a very different view on if rates do come down. I think real estate has a lot more seasonality than folks given attention to. If rates come down end of Q1, any Q1, you'll see prices rip for the prompt 1-12 weeks then dip and in Q4 really correct of that year. If rates go down at any other point, you'll see prices go up quickly in the 4-6 week span then come down. I really feel the rates are the reason inventory is low and once rates come down, we'll see inventory change.

Look at the same cities previously mentioned

Arlington, Savannah, and Boston

Once rates go down, inventory will increase in the long(er) term. Prices may rip in the shorter term, but I think inventory will go up. And buying power will change.

rates go down inventory for sure will go up.. those that have been squatting on the current mortgages will now be more inclined to go ahead and sell .. and take on a new mortgage,, I know personally my wife wanted to move but I was not going to retire a 3 % mortgage and take on a 7%. Just not going to do it.. When rates first jumped we did lose half a dozen buyers that would have bought my new builds..

100%.

The market is incredibly quick and vicious with it's response. What would've taken probably 18 months in yester-years happened in 5 months(in H2 22). Infact, the market is proactive and not even reactive these days in some areas. When/if rates go down, you'll get the hyper response up then I think smoothen out to trickle down once the inventory settles. 

Take a look at Boston. It's got 4.365 active listings, $775k median list. Precovid was $675k median list, at about 13k active listings(in 2019 on avg). Almost 1/3 the listings, yet only up $100k in these inflation years. I get the money printing, but the lack of supply was more detrimental to prices as was the supply chain more detrimental to inflation than anything else. 

Let rates come down, it's actually going to cause a supply rationalization. Not glut, but balance. And this is when correction will happen.

Since those with low rates in the current home stayed put in droves.. much of the only inventory was new builds it took a few months to flush through the shock but since then we have done quite well and did extremely well this winter spring .  In my little burg were we are building Canby Oregon there are 35 new builds pending and I have 18 of them .. mine are all the most expensive . the production guys stripped there houses down to lower price we added amenities and high end stuff and raised prices.. My wife was right she made me stay the course and here we are..

[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. 

[Eric James]

Quote from @V.G Jason:

Quote from @Alan F.:

Quote from @V.G Jason:

Quote from @Scott Trench:

One more thing to consider. What are you going to do when your sellers begin declaring bankruptcy? 

Some huge percentage of sellers who are willing to sell subject-to are willing to do so because they are irresponsible and bad with money... that's why they are being foreclosed on. 

I am sure that every once in a while, someone selling their home Subject-To will magically transform into a responsible person, intelligently capable of forecasting their long-term financial future, and turning over a new page. 

But... that is likely to be a tiny minority. The majority of these deals are likely going to see the sellers go on to make terrible financial decisions, rack up debt, and some huge percentage of them WILL declare BK in the coming years. 

What's the plan to handle up to 30-50+ bankruptcies from your sellers all at once in the middle of a bad market? 

 Same logic with people who sell their house seller-finance to someone a bank won't approve? The logic just defies itself.

As for what will  happen, I'm thinking the fed is just going to hang tight until something breaks. Only pause with this view is the election.

And when things break, the chickens will come home to roost for all SF/subto/no cash in players or folks who bought into the FOMO without reserves. It doesn't need to be a 30-40% correction, but what usually happens is all those chickens come home to roost at the same time.

 Just spit balling but.....what if; % rates don't go down, inflation doesn't go down & unemployment ticks up, all over many years. Interested in your and others thoughts.

 So pretty much where we are except for the technical unemployment numbers? Continued stagflation and something will undeniably break. Likely the S&P companies that are just too levered. 

And I think the Fed will push it this way and the only doubt I have is the influence of the election. That doubt is strong though. 

I also have a very different view on if rates do come down. I think real estate has a lot more seasonality than folks given attention to. If rates come down end of Q1, any Q1, you'll see prices rip for the prompt 1-12 weeks then dip and in Q4 really correct of that year. If rates go down at any other point, you'll see prices go up quickly in the 4-6 week span then come down. I really feel the rates are the reason inventory is low and once rates come down, we'll see inventory change.

Look at the same cities previously mentioned

Arlington, Savannah, and Boston

Once rates go down, inventory will increase in the long(er) term. Prices may rip in the shorter term, but I think inventory will go up. And buying power will change.

 And when rates go down significantly it will be in response to rising unemployment, which will also affect the real estate market.

[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.