All Forum Posts by: Jessica G.

I'm nervous. I've been talking to an acquaintance for weeks now about buying his property by taking over his loan as a sub2. We are finally meeting today so I can look at the property and we can talk about it.

(Built in 1985; loan balance $114K; recent comps $135Kish, monthly P&I $650; Taxes and insurance $425; projected rent conservatively $1300 [all comps are $1400+]; three years landlording experience with former primary home, but this would be my first deal.)

If we go forward, here are the basic steps I intend to follow. Can you tell me if I'm leaving anything out?

1. Appraisal

2. Inspection

3. Consult real estate attorney

4. Close at Title Company

4a. Get Power of Attorney for the property

4b Have seller send “release of information" authorization to the mortgage holder on my behalf

4c Seller changes mailing address on account to mine

4d Include language that when I refinance, escrow goes to me

5.Sell/dispose of home contents (he just wants to walk away; I intend to work with an estate sale company)

6. Rehab for rental (I will only take on this project if the rehab is minor -- flooring, painting, small handyman projects)

7. Rent that baby out

@K. Marie Poe

Hi K. Marie! The property taxes are about $3,100. That escrow amount also includes homeowner's insurance.

I think the deal is good, too! I just need a reality check. I need to see the inside of the property and figure out how much it will cost to get rent-ready, and get an inspection.

@Bill Gulley

His payments are 100% current. He just wants to get out.

I am aware of the due-on-sale clause. I am just interested in what people think of the numbers. :)

I know someone who wants out of his house without dealing with a sale or foreclosure. He is considering sub2 (i.e. signing the house over to me and I take over the mortgage). One rent comp is $1350 for the exact same floorplan in the same neighborhood. Other rent comps look similar. I think I could easily get $1,300 for it, maybe a bit more. I would manage it myself. It would be my second SFR. (Have had the first for three years.)

The house is a smallish (1,300 sf) 3/2/2 in a good neighborhood in an affluent DFW suburb (Allen, about halfway between Richardson and McKinney) with awesome schools.

His monthly payment:

Principal $175.68

Interest $475.28

Escrow (property tax) $371.70

PMI $51.65

Recently sold comps make it look like the house is worth in the $125K-$130K range. He owes $114K.

I am going to go see it in the next few days. He bought it four years ago and says it needs: A dead tree removed, a few fence planks and maybe a post replaced, a deep cleaning. I have a cleaner who will do a deep clean for about $300. There are a couple of rooms of carpet that probably need steam-cleaning. I have a fence guy who will probably charge $500 for the fence. I have no idea how much the tree will cost.

He says the house otherwise is in very good shape and I will trust but verify with a professional inspection. The house was built in the mid-eighties and paint/flooring/appliances updated in 2010.

Thoughts?

ETA: Forgot some important info. Loan is FHA at 5 percent. Seller wants no money from the deal, just to walk away with no penalty. The house is also full of stuff (A/V equipment, furniture) I would have to deal with; I'd probably call an estate sale company.

@William Hochstedler

@John Chapman

Hi John! I agree that the house is tiny! But on MLS, the cheapest 3/2s in Allen by far are $1,500 and up. I whether the house makes sense as a rental depends on what his mortgage payment is.

Thanks William for the tips! I will try to convince him that the only way he's getting out of this house trouble-free is via sub2 (which I think is true, actually).
@John Chapman

@William Hochstedler

@John Chapman

Hey, sorry guys! I did mean a sub2 loan, or AITD, where he would transfer the title to me and I would take over the payments. That's what I would like to do, but he is afraid that wouldn't be the clean break he is looking for. I am just trying to see if there is another way to buy it.

The repairs the property needs (without having looked at it myself yet) are dead tree removal and replaced fence post. Then of course it would need the normal prep for sale or rent. It's a very nice, quiet neighborhood in the middle of an extremely affluent suburb of Dallas (Allen, about halfway between McKinney and Richardson).

Here is a recently sold comp (same layout) he showed me that is one block over. http://www.zillow.com/homedetails/1400-Flameleaf-Dr-Allen-TX-75002/26633257_zpid/

I have an acquaintance who wants to walk away from his property. He has no interest in making fixes, cleaning, and selling his stuff. He has no interest in making money. He just wants out without a foreclosure.

He owes $114,000 on a property worth about $135,000 in a mostly affluent suburb with excellent schools. Rent comps look like they are around $1,350.

He is not interested in a sub2 because he says he is looking for a clean break. I don't have 20 percent of $114,000 ($23,000) right now.

Is there any way I can buy this house? Can he transfer the title to me under a sub2, then I immediately refinance?

Or is there another way I'm not thinking of?

Edit: It's an FHA loan at 5%. I can't assume it because I wouldn't be an owner/occupant.

@Joseph Weisenbloom

Right, we are saving up for a down payment now to buy our second investment property.

I didn't know about "subject to" loans. I looked into assuming his loan because it's an FHA, but you have to be an owner-occupant for that. Doing a sub2 would actually be perfect, because then I could acquire the property and immediately sell it, or hang onto it as a rental.

I'm waiting to hear what the homeowner wants to take away from the deal.

@Jon Klaus

In a sub2, the note stays on the seller's credit report, right? Isn't that a huge deterrent for the seller?

@Jon Klaus

Is Sub2 always intended to be short-term, like for a flip? Or would a buy-and-hold investor use it?