Subject two Flip

[Jim M.]

So I've got a seller who is looking to get out of a property. How should I take this down? He wants to get out of the property and is open to a creative financing option....sub2. I have not done a sub2 before.

Mortgage balance 150k and some change
Rehab budget 85k
arv is 310k (have 2 other rehabs going in neighborhood myself)

40k spread

I don't have the cash to take down the whole deal but do have enough for the rehab costs. The rehab time would be a little over 3 months and there and its too thin for hard money so I'd rehab with my cash. I haven't done a sub2 before but I've got some rehab experience so my rehab numbers and arv are pretty firm. What are your thoughts?

[Bill Gulley]

Jim, there are lots of ways to take this down. A sub-2, a contract for deed, a lease-option, a purchase agreement out 6 months with a contractors' agreement for work with an assumption of payments, partner with the owner in an LLC....almost endless

If you want to stay away from the due on sale (which probably isn't that much of an issue within 6 months under the circumstances) just put a purchase contract on it and contract to do repairs/improvements with the contractor paying costs. You have a contract to buy and you have contractor's liens as any other contractor would have. If you are a contractor with proper business entity and license, this can make insurance issues easier for you in the normal course of business.

The Sub-2 will grant title, the safest, with respect to the link above that skips across the topic, you can't really do just anything you can get a seller to agree to (common sence and fairness considered). If the seller is due more than the underlying mortgage it can be done as a wrap, you don't need to match terms of the first, but that is a note deed of trust/mortgage issue.

The CFD and options with a lease give possession, but not title, the down side in addition to that is that you may or may not be able to pull permits as required, permits are usually restricted to contractors or owners in title. Insurance is another issue.

You can partner with the owner as well and you could partner in an LLC (more complicated with these, but there would be no money from you except for repairs).

I listed these in order of preferrence that I would use.

If you elect the Sub-2, I suggest you read more on the topic here and take care in following advice of any one author, you need to get with a local attorney to finalize whatever you decide to do. Good luck :)