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 @Scott Trench:

@Andrew McGuire

Thank you for the response. FWIW - I also hated my own line in Set For Life about listening to music being a waste of time, and ripped that out of the revised edition the first chance I got :). That chapter was completely redone.

I tried to throw a bone here that there is absolutely a use case for Subject To in certain situations. I'm not against Sub-To in all cases.

What scares me, for you, and for anyone else reading this post who thinks this is a good idea, isn't the Subject-To, it's the "All-In on Subject-To" approach. 

I think that if you were doing a one-off, and found a great deal like this, I'd be wary, but still supportive. I am sure that you could responsibly handle one person's mortgage over a few decades, and it could be a great outcome. Maybe as time passes and you have a well-capitalized position, you can do another, and another. Again, as your position enables you to safely exit the subject to mortgage either by paying it off, or refinancing it and still being able to hold onto the deal.

But, the fact that you are doing three at once, and looking for 97 more in short order is what rattles me. It's unclear if your position would enable you to refinance or pay off any of the mortgages. I strongly caution you to remember that the penny does not double forever. It is not linear. If you are all-in, not with just your own money and BofA's money, but also with 100 people who are not good with money (or just who are unlucky) and something hurts your market, or a few of your properties, then a chain reaction can wipe out and devastate many lives.

Losing "OPM" is not risk-free for the person leveraging OPM. Those OPM, if they experience huge losses or ruin at your hands, can turn into VAOP (I made this up - "Very Angry Other People" - like it?) who may chase you around the internet with a digital pitchfork. OR... in some cases, might turn up in real life.

Real Estate is not *just* about cash flow. It's also about all the other things that allow you to hold onto property throughout the market, property, and tenant lumps and bruises that get thrown at you over a long period of time. It's also about exit strategies - and this approach only as represented by your post only has one - attempt to hold on long enough for appreciation and amortization to create equity, giving you the option to sell. 

Well said and I do agree with you, I'm not all in on Subject To, there will be times and I'm sure more than Subject To where I will buy and sell traditionally. Its is more ideal if rates were in a place where deals actually made sense as long as your using the old creative eg. adding a DADU, house hacking, Co-Living etc. I like all of these strategies, I just don't want to wait because I have a personal belief that when rates drop, when and if they do there will be another run-on Real Estate pushing prices way up. Don't know that 100% but I lean that way. When that happens, I want to own many homes, I got into the game in 2020 so I'm late and trying to catch up. When prices double, I would like it to be on 20 homes instead of the handful I owned before rates really went up and made almost all deals losers in summer of 22'. Anyways I appreciate your train of thought and have learned so much from you, one of the people that really helped me start my RE investment career. Regardless of my schooling I'm glad this forum got your attention and i had a chance to shoot it with you. Have a great weekend. 

[Andrew McGuire]

Quote from @Kristine Ann:

I need to read up on "subject to" verses assumable mortgage.  I was under the impression they were completely different.  I thought with an assumable mortgage, you go through the lender and replace the name on the mortgage.

@Scott Trench I was actually thinking that this would be great for regular, non-foreclosures.  You could offer someone with a 3.5% mortgage 25k over market value so they could use that 25k to cover the high interest rate on their next house.

The whole reason you have to overpay is because the sellers have little to know equity in many of the situations, by the time they pay agent, closing cost etc. they have to write the fat check. To me why I'm cool overpaying sometimes because my monthly payment is so much less this way, and by the time rates drop prices would have risen so much that my property would actually be positive equity, thats in theory of course we will have to see what happens. 

[Steve Vaughan]

Quote from @Andrew McGuire:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

Quote from @Steve Vaughan:

Negative equity?  Sounds like a term car dealers use when you trade in your existing payment for a new one.  

Equity by definition is a positive number after the dust settles.  Can't be negative. 

Anyway, nobody checks back in after their enthusiastically shared idea fails, but I would wager this will. 

I get low DP, being creative and all that, but I bet skipping proper title DD on top of not knowing how to handle hazard or title insurance beneficiaries will blow you up. 

 I'll be out here building a portfolio and helping people out of tough situations while you sit there with your fingers crossed rooting for it. Stay small my friend. 

Andrew 

Steve is one of the smartest and most respected members on Bp. U owe him an apology.  

Never heard of him but sure I'll reach out and apologize. I'ts my natural response when someone roots for you to lose, as real estate investors we all know what is like and usually smart and successful people don't root for others to crash and burn even when they disagree. 

Thank you both, but not necessary.  I appreciate a chuckle.
I would wager this will lose, not root for it.  Don't care enough.
Address the lack of title DD and how to handle insurance if you want to increase success rate. 

[Chris Seveney]

I look at this and ok you overpay and are paying down $7200/year in principal

You take 3 years to break even but it’s really 6 years because of selling costs on a property.

I would not assume appreciation in homes with reports showing average pay increase of 3% and average prices increasing 5% (new York fed latest q1 release) and debts are at all time highs.

Original poster better not get into a cash crunch as if they do they will be in bankruptcy in a New York minute.

[Andrew McGuire]

Quote from @Steve Vaughan:

Quote from @Andrew McGuire:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

Quote from @Steve Vaughan:

Negative equity?  Sounds like a term car dealers use when you trade in your existing payment for a new one.  

Equity by definition is a positive number after the dust settles.  Can't be negative. 

Anyway, nobody checks back in after their enthusiastically shared idea fails, but I would wager this will. 

I get low DP, being creative and all that, but I bet skipping proper title DD on top of not knowing how to handle hazard or title insurance beneficiaries will blow you up. 

 I'll be out here building a portfolio and helping people out of tough situations while you sit there with your fingers crossed rooting for it. Stay small my friend. 

Andrew 

Steve is one of the smartest and most respected members on Bp. U owe him an apology.  

Never heard of him but sure I'll reach out and apologize. I'ts my natural response when someone roots for you to lose, as real estate investors we all know what is like and usually smart and successful people don't root for others to crash and burn even when they disagree. 

Thank you both, but not necessary.  I appreciate a chuckle.
I would wager this will lose, not root for it.  Don't care enough.
Address the lack of title DD and how to handle insurance if you want to increase success rate. 

 That's fair and regardless respect your opinion and what you've done. Agree that insurance is an issue. 

[Andrew McGuire]

Quote from @Chris Seveney:

I look at this and ok you overpay and are paying down $7200/year in principal

You take 3 years to break even but it’s really 6 years because of selling costs on a property.

I would not assume appreciation in homes with reports showing average pay increase of 3% and average prices increasing 5% (new York fed latest q1 release) and debts are at all time highs.

Original poster better not get into a cash crunch as if they do they will be in bankruptcy in a New York minute.

I have to count on appreciation, I live in Arizona, when I was a kid homes cost 30K and I'm not that old relatively. You think Arizona is not going to go up in price, have you seen how many jobs and people are moving here? Why would I file bankruptcy if all of my properties are cashflowing since I am buying them at 2 or 3% interest rate and gaining equity every month since I have a great principal pay down? Most of my deals I'm pulling all my cash out to wrap and get infinity return. The only ones I don't are the rentals I keep that cashflow. 

[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.

[Jay Hinrichs]

Quote from @Andrew McGuire:

Quote from @Chris Seveney:

I look at this and ok you overpay and are paying down $7200/year in principal

You take 3 years to break even but it’s really 6 years because of selling costs on a property.

I would not assume appreciation in homes with reports showing average pay increase of 3% and average prices increasing 5% (new York fed latest q1 release) and debts are at all time highs.

Original poster better not get into a cash crunch as if they do they will be in bankruptcy in a New York minute.

I have to count on appreciation, I live in Arizona, when I was a kid homes cost 30K and I'm not that old relatively. You think Arizona is not going to go up in price, have you seen how many jobs and people are moving here? Why would I file bankruptcy if all of my properties are cashflowing since I am buying them at 2 or 3% interest rate and gaining equity every month since I have a great principal pay down? Most of my deals I'm pulling all my cash out to wrap and get infinity return. The only ones I don't are the rentals I keep that cashflow. 

Andrew the issue is your counting on these wraps to pay like a government guaranteed debt instrument.. your wraps will fail thats a given.. the issue is now you have a non paying homeowner who you have to foreclose on whilst still making the mortgage payments tax's insurance etc. Not to mention the damage they do.. So while the wraps work .  you just have to make sure your ready willing and able to take them over while you bleed out negative cash flow during the period it takes you to get it back stabilized and either resold or rented. Seller carry wraps are normally folks that cant get a loan for various reasons so they are a credit risk/default risk.

Its the same with lease options .. in theory it all works till it doesn't.. So as you embark on this the point is you need more than average amounts of reserves and ability to refi.

[Chris Seveney]

@Andrew McGuire

How is the commercial market doing in Arizona right now? How many people were moving to Arizona

The biggest mistake people make is they think appreciation is a straight line which it’s not.

If it was then everyone would be billionaires.

What will happen if you hit a two year dip and rices drop 10% and unemployment goes to 5% and 10% of your properties are vacant / not paying?

Your business plan is based on the perfect storm as jay mentions and if there is the tiniest crack it will all come crashing down

It appears there has been zero risk analyzed in this business plan. Again I am just providing feedback and don’t care if you buy 1 or 100,000 homes as it doesn’t impact me. Just providing some warning

[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. 

[Andrew McGuire]

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

Quote from @Chris Seveney:

I look at this and ok you overpay and are paying down $7200/year in principal

You take 3 years to break even but it’s really 6 years because of selling costs on a property.

I would not assume appreciation in homes with reports showing average pay increase of 3% and average prices increasing 5% (new York fed latest q1 release) and debts are at all time highs.

Original poster better not get into a cash crunch as if they do they will be in bankruptcy in a New York minute.

I have to count on appreciation, I live in Arizona, when I was a kid homes cost 30K and I'm not that old relatively. You think Arizona is not going to go up in price, have you seen how many jobs and people are moving here? Why would I file bankruptcy if all of my properties are cashflowing since I am buying them at 2 or 3% interest rate and gaining equity every month since I have a great principal pay down? Most of my deals I'm pulling all my cash out to wrap and get infinity return. The only ones I don't are the rentals I keep that cashflow. 

Andrew the issue is your counting on these wraps to pay like a government guaranteed debt instrument.. your wraps will fail thats a given.. the issue is now you have a non paying homeowner who you have to foreclose on whilst still making the mortgage payments tax's insurance etc. Not to mention the damage they do.. So while the wraps work .  you just have to make sure your ready willing and able to take them over while you bleed out negative cash flow during the period it takes you to get it back stabilized and either resold or rented. Seller carry wraps are normally folks that cant get a loan for various reasons so they are a credit risk/default risk.

Its the same with lease options .. in theory it all works till it doesn't.. So as you embark on this the point is you need more than average amounts of reserves and ability to refi.

That's a valid risk and concern, you've done it longer and seen more than I have. I hope they go up in value before and if the wrap buyers stop paying, to another's point banking on appreciation is not really a good strategy either. Fingers crossed. 

[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 :) 

[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.. 

[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.

[Jay Hinrichs]

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.

creating REAL WEALTH day one that is sustainable.

[V.G Jason]

Before you claim, I'm here to "root for you to lose" you need to understand the way you come off, the way you handle interaction and everything in between will need to change for you to really be successful. And I  think you'll be successful, but not this way.

I know you'll come back at me on this. And before we have an internet war on whose bigger; I'm 10-15x your size in REI and REI is less than 5% of what I own. Let's put away the high school dick measuring sticks and stick to what matters-- you being successful.

 Don't talk in a position of strength when you're promoting a relatively grey area, fraudulent mechanism. It's a tough thing to stand on. You got Title Insurance issues and original homeowners you're messing with, the world is not a forgiving place. Just watch what tree you bark up, you could get the wrong dog.

The cash balance you hold is great to hear, but how deep are you? Risks are not really evaluated appropriately in real estate, there's no beta to look like an equity or debt filings to see how much re-appropriating a position will do to one's underlying CF position.

The risk of not all paying at once is less likelier than 2-3 not paying but far more grand; when **** falls, it all falls at once. There's correlation in this, it's called those black swan events. Doing nothing is not riskier; risk-less is almost fully available right now by buying govt debt. Such an asinine statement to make.

Good luck with this, if you're like the other sub-to people trying to create a following then come differently. My best advice is to get out of these deals, and take the capital to get take slightly less levered deals in the open market in PHX. It's an excellent market and I agree to bank on appreciation, provided your time horizon is north of 10 years and ideally greater than 15. If it's less, buy short-term debt and some equities. 

[V.G Jason]

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.

Yeah the credit unions I talk to are saying outside of a few folks, no one's doing much of anything and little to be underwritten. Noticing some wholesale deals getting more enticing, I'm tapped out on REI until post labor day but boy I am licking my chops.

[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.

[Don Konipol]

Unless an investor has experienced two FULL real estate cycles, they don’t really understand severe “corrections”. 

Two of the properties I bought in 2012 in Arizona were luxury high rise condos - the first the seller purchased in 2007 for $525,000; I paid him $155,000 for it; the second the seller bought for $1,275,000 in 2008; I paid $505,000 for that one.  

Just because prices have gone up since 2020, doesn’t mean they’ll continue to rise.  They may — or they may not.  

The only thing we know is that over a LONG period of time real estate prices, IN GENERAL will rise because the government keeps increasing the money supply.  But - the government is having a much harder time controlling the money supply than historically.  This is because money in circulation, i.e., currency, continues to make up a smaller and smaller portion of the total money supply (M1, M2, M3).  There’s now a lot of NEAR money (liquid assets) outside of government regulated institutions.  So, even the governments desire to increase money supply to avoid recessions (which result in the in power political party being removed from office)  may not be enough to ensure real estate future price increases.

While I still believe prices will go up IN GENERAL, LONG TERM, I don’t believe that most investors have the staying power to survive even a minor correction. 

[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.😂

[Michael P.]

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

 Interested in investing in JLH. What % returns do they offer?

[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

[Jay Hinrichs]

Quote from @Michael P.:

Quote from @Jay Hinrichs:

Quote from @Andrew McGuire:

So would you recommended just not buying property right now for those of us little guys that are not big Capital Partners? Sounds like an advertisement to not buy anything  at all so we have to invest with you on not have any control. 

LOL this site is to help people you have drunk the cool aid I get it.. I don't advertise for investors etc. just trying to help like I said i have seen this play before and unless your VERY well capitalized you take on a ton of risk you need 100% performance for this to work.. anyone with any experience in real estate and lending ( which you will be doing when U wrap) knows nothing is 100%.. So as long as you have a back up plan  IE 500 to 1 mil in cash so you can pay off a senior loan if needed or refi if need this works fine..  But if you think your going to roll 10k and have minimal reserves U are taking on a lot of risk your simply not aware of today.. And if you cant rescue these and they end up in default you ARE going to end up in legal trouble 95% of the time.. you ruin someones credit and they are not happy.. Even  for us which had the liquidity and ability to rescue these as I stated I would never pay market or over market you box yourself into a corner .

I am not a syndicator so my deals my clients are always in full control of their cash ALWAYS..

 Interested in investing in JLH. What % returns do they offer?

30 to 50%  plus 5 X multiple in 1 year..  Hey just have to keep up with the other money raisers out there .. :)  

[Don Konipol]

Here’s my take on subject to

1. Can be Legitimate method of purchasing property, especially when outside financing is expensive or unavailable

2. Easy to “abuse” placing seller in potential precarious position and buyer in precarious position if default occurs and seller takes legal action

3. With interest rates double rate on subject to loan, lenders have incentive to accelerate the note

4. With technology and on line county property records, lenders have the means to monitor deed transfers 

5. Most dangerous situation for sellers are buyers who are (1) inexperienced (2) undercapitalized and (3) over extended 

6. Buyer is not “helping” seller; a best this is a fair market transaction with both party operating in their own best interests.  Buyer is not Mother Teresa.

7. The whole transaction works better when property is commercial or investment and both parties are investors.  

IMO, the problem is not subject to per se; the problem is that there are now hordes of inexperienced, undercapitalized wanna be investors trying to buy homes “subject to “ with no idea or thought as to the consequences of a default. As a result we can expect legislative initiatives in the future that place curbs regardless of legitimacy of any individual transaction. 

[Andrew McGuire]

Quote from @Don Konipol:

Here’s my take on subject to

1. Can be Legitimate method of purchasing property, especially when outside financing is expensive or unavailable

2. Easy to “abuse” placing seller in potential precarious position and buyer in precarious position if default occurs and seller takes legal action

3. With interest rates double rate on subject to loan, lenders have incentive to accelerate the note

4. With technology and on line county property records, lenders have the means to monitor deed transfers 

5. Most dangerous situation for sellers are buyers who are (1) inexperienced (2) undercapitalized and (3) over extended 

6. Buyer is not “helping” seller; a best this is a fair market transaction with both party operating in their own best interests.  Buyer is not Mother Teresa.

7. The whole transaction works better when property is commercial or investment and both parties are investors.  

IMO, the problem is not subject to per se; the problem is that there are now hordes of inexperienced, undercapitalized wanna be investors trying to buy homes “subject to “ with no idea or thought as to the consequences of a default. As a result we can expect legislative initiatives in the future that place curbs regardless of legitimacy of any individual transaction. 

I agree with your take for the most part. Would you say we are heading towards more Contract For Deed, Land Contract, Agreement For Sale as more lenders catch on and call notes due? I don't know on #6, I've call cancelled expired listings with no equity for a living, I've helped out some sellers that had all kinds of issues going on including domestic abuse, breathing problems and in most cases headed towards foreclosure, their agent that the went expired had no solutions for them. Not saying I'm a Saint lol, far from it but I've helped out people in really bad situations.