First Subject-To deal (Denver)

[Mike Rodriguez]

Good morning everyone. This deal actually came to us from a long time partner of ours. I had never done anything like this and everything about felt like at any time it could go bad but actually ended pretty decent. The owners of this property had passed away and left the property to the son. It had entered into foreclosure on the first, it had a past due second, and past due on HOA. Our guy, who ultimately played the role of a deed buyer/wholesaler had purchased the deed from the son and recorded with the county. With a $80k first, $40k second, $10k HOA, we were in it for $130k and it needed roughly $20k in rehab so essentially $150k. As I'm sure Josh can attest, the Denver market has gone crazy but we assigned a conservative ARV of $215k to the property seeing the upward trend we expected to get more but played it safe. We had cured the mortgage and the HOA back pay and created a lien for each in case we wanted to allow it to go into foreclosure prior to investing any capital into the rehab giving us rights to redeem. Ultimately we decided to rehab which was a better decision but the filed liens gave us options for exit. So we started paying the mortgage with no contract with the seller and the bank did reach out to see what was going on. We explained to them who we were and that we were going to keep the mortgage current. They said that they could call the mortgage and would investigate and get back to us. We knew that they had that "call" clause in the mortgage but we had hard money lined up in the event that they acted on it. They never did and honestly actually had someone from the bank approach us on another deal, crazy how those things work sometimes. Anyway, we've had abysmal luck with contractors in Denver (so much work out there due to the hot market) so the rehab took longer than expected (8 months) so we carried 3-4 additional months of carry costs from the original plan but all in all worked out in the appreciating market. Also, we had some open and candid talks with the 2nd mortgage holder and negotiated a $10k discount. Here are the numbers:

Sale price (also appraisal value) - $240k

First/second mortgage - $80k+$30k - $110k

HOA - $10k

Rehab $30k (found some electrical and used some higher end materials from original plan)

Carry costs - $5,300 (insurance+mortgage payments)

Agent Fees/Legal - $13,500

Total deal - $240k (sale price) - $170k (costs) = $70k net profit (before tax)

The beauty of subject-to was outside of an attorney consult there was no fees to assume the mortgage which meant no closing, no loan.  We ended up netting ($70k before tax which turned this into a solid double for us! Feel free to reach out if you're approaching subject-to deal and I can at least give you my experiences. 

Cheers,

Mike