"Subject To" good or bad idea

[Jessica Sheppard]

I am a beginner in the REI field. I have so, many questions that I know it is impossible to answer with one subject. Literally, I really just created an account for this site 9-10 days ago. I have read some forums, but mainly listening to podcast, which I think are awesome and just a wealth of information. Long story short, I do not know if this is coincidence or not, but just odd that this seemed to have happened now. I currently rent a property from a couple through a company that deals with rent etc, but the owner and I have communication through text. We were talking back and forth and it looks like he wants to sell and break even...

The property is very nice, ready to rent now, built 1999 new paint, laminate etc. This home was only on the market a week before I got it, so I know it is very rentable. I am not in the position to get a loan, but was thinking "subject to". The only problem is the home is probably worth about $130-135k (just on a comparison I did online, not an appraisal or from an agent) and the mortgage is for $148,400. I am looking to buy and hold to produce long-term wealth, I am not looking for a quick dollar or to make any money upfront. I work full-time in another field to support my family.

What are your thoughts? What could or should I offer the owner that he could possibly not refuse or what could make it a better deal? Is this thing a bad idea entirely? Why should the owner offer me "subject to" terms?

I did do a brief analysis on the investment calculator for wholesale and it still showed cash flow, not much only like $2700 per year. I put the vacancy rate at 10%, repairs at 6%, and cap 6%. Again I do not the absolute numbers I was guesstimating. It may cash flow more if the taxes and insurance are already included in his monthly mortgage payment.

Again, I really got into this less than 2 weeks ago and really would like some solid advice.

Thanks in advance for your help. I really appreciate it. 

I am in Michigan - Westland MI area closer to Canton, but Westland school district.  

[Daniel Mohnkern]

Hi, @Jessica Sheppard.  

Welcome to BiggerPockets.  

Concerning subject-to deals, you'll find that there are many varying opinions on both sides of the fence. Undoubtedly, it is a game of Risk. 

Be VERY careful about jumping the gun with getting into a property before you understand how to analyze cash flow. You may really get yourself into a pickle. You should never make a purchasing decision without having a complete understanding of the exact numbers. You make money when you buy, not when you sell, so, you need to make sure that you know exactly where your money is coming from and how much money you will be making. The fact that you admit that you don't know the exact numbers and are just guesstimating is a huge red flag. I would suggest that you continue listening to podcasts, reading blogs, and talking on the forums to learn as much as you possibly can before jumping into a deal. 

I have a friend who I learned a little bit about Real estate and jumped right in, buying an empty property that needed rehabbed in a very bad neighborhood and he ended up going bankrupt due to naivety. He looked at me as though I was never going to pull the trigger because I wanted to make sure that I studied and learned a bit more before jumping in. Now, I'm making money in real estate and he is not. 

Don't confuse the advise against analysis paralysis with someone advising you to jump right in before you understand things completely. There should be a happy medium.  

Right now, you're probably not ready yet.