Subject To Purchase

[Amanda Wilks]

Hi fellow bp investors! I have an opportunity to buy a property subto. The property is upside-down in equity. The market value is around $220k. The current loan balance is $235k with a 5.12% interest rate. The average monthly rent for ltr is $1650 and the monthly piti is $1770. I have a fellow investor telling me it's a great deal because I'm acquiring a property with zero out of pocket and I can do the following strategies. 1. Sell as a seller finance with 10% down and charge about 8% interest increasing the monthly income. 2. STR are not allowed with the HOA, but MTR are. I've never done a MTR so I'm not sure how to stress test on that. 3. Wholesale. I'm not sure why he thinks it would be a good wholesale deal being upside-down in value. I'm struggling to see how it can be a good deal and would like some other opinions. Maybe there's something I'm not seeing, or maybe I just need to keep looking for something better.

[Nicholas L.]

@Amanda Wilks

No

Move on

[Don Konipol]

Quote from @Amanda Wilks:

Hi fellow bp investors! I have an opportunity to buy a property subto. The property is upside-down in equity. The market value is around $220k. The current loan balance is $235k with a 5.12% interest rate. The average monthly rent for ltr is $1650 and the monthly piti is $1770. I have a fellow investor telling me it's a great deal because I'm acquiring a property with zero out of pocket and I can do the following strategies. 1. Sell as a seller finance with 10% down and charge about 8% interest increasing the monthly income. 2. STR are not allowed with the HOA, but MTR are. I've never done a MTR so I'm not sure how to stress test on that. 3. Wholesale. I'm not sure why he thinks it would be a good wholesale deal being upside-down in value. I'm struggling to see how it can be a good deal and would like some other opinions. Maybe there's something I'm not seeing, or maybe I just need to keep looking for something better.

After assuming average repairs and maintenance, you’re AT BEST negative cash flow of $600 per month. So, the desirability of the deal depends on assumed appreciation of the property’s value. National economic trends, local economy, neighborhood situation, home condition, desirability as a rental, demand factors as a purchase, and too many other factors to mention. 

Many investors simply will not invest in property having negative cash flow.  I myself will, IF I am convinced that the property has a specific reason that ensures the likelihood of near future strong price appreciation.  

As for selling with 10% down at 8% interest, you now have two title transfers that violate the due on sale clause and add complications to subject to “safeguards” that reduce risk if note is accelerated, if party in possession doesn’t pay taxes or insurance, and of triggering whatever system the lender has set up to notify them when a deed transfer takes place. 

Used to be that the subject to buyer was safe from litigation because he never ASSUMED the note.  While it’s still true that he doesn’t have liability as per the lender; he may be sued by the seller or new buyer if default occurs in our current legal climate.  So use of a remote entity is highly suggested.  

Bottom line is ON THE SURFACE there doesn’t appear as if there’s enough “ meat on the bone” to make this one worth it. If price wasn’t above market, or if cash flow wasn’t negative, or if interest rate on mortgage was 3% instead of 5%  might be a “deal”.