All Forum Posts by: Andrew McGuire

Let’s step back for just a minute….

First, there is nothing illegal, unethical or immoral about purchasing a property subject to an existing loan.  A note holder can NOT stop the owner of a real property from selling the property.  Nor has the property owner promised the note holder that he would not sell the property without paying off the note.  Any deed of trust or mortgage document that had these restrictions would be in violation of basic constitutional rights.

All the mortgage instrument says is that IF a property is transferred, then the note holder has the right to accelerate the note.  

So, where do the problems, risks, and potential disasters come in? 
IMO, if both parties are fully informed of, and able to understand all risks, and potential problems, then the subject to transaction has met requirements for a fair, ethical, and “proper” transaction.

This means that if the buyer has little or no capital reserves, or has ownership of 10 properties all subject to, or if notes are called intends to walk away from the loan, then this information is disclosed to the seller.  Same if the buyer has the ability to pay off a called note for cash and would do so.  Once the seller is provided with COMPLETE information, and assuming the seller has the ability to evaluate the risks involved, then it is the seller’s decision as to what constitutes an acceptable risk; whether their willing to suffer the consequences should problems occur; and what are their alternative course(s) of action.  

I have been involved in a number of sub to deals, almost all of which were successful with few if any problems.  However, these transactions were almost all between investors; I’m not sure if most homeowners are really able to understand the total picture.  I would at least make sure to disclose all the negative possibility outcomes, and have them sign an acknowledgment.  

@Andrew McGuire It is possible to still find deals in Arizona today. So far I have purchased 5 or 6 properties this year. I’m holding most of them and flipping 1 or 2 of them.  

Here is the one I am flipping:

https://www.zillow.com/homedetails/23685-N-Desert-Agave-St-F...

I bought it for 235k and put about 25-30 into it. Plus I have held it for a few months with hard money. So my total into it is property around 275k. I plan to sell it for around 340k and make about 50k on the deal.

Let me clarify. If the market corrects 20% and your renters are struggling to pay rent how does your statement equity comes & goes, as long as it cash flows work then?

Again, the thinking process is when it comes down-- it all comes down. Not just 10-20% of people cannot pay, it's usually the inverse and that 80-90% cannot pay. 

In subto, how does your equity sit if the market corrects & you overpaid? And how does your cash flow sit when your renters don't make payment?

Compared to traditional, I think the latter is only the risk. The former is going to get a lot more attention for subto. Or am I off? @Jay Hinrichs

As for why I invest, I invest way more conservatively and don't take lender risk or original owner risk. Would never do that. I also bake in a healthy amount of reserves, your definition of healthy and mine I believe will different 

I would never put myself in that position.

From my understanding in subto you're basically assuming one's mortgage and deviating from the lender. I don't play ball like that. I'm able to make things work without needing to do that. If I did that stuff and any of my few lenders or stuff heard that for my rep, it would be tarnished. I try to keep it going strong and not get cute. 

 Completely missing the forest for the trees. Don't know where to start. Subto is exposed on the original owner & bank, the  landlording with debt is exposed to current renters making payment on a downturn. Way too many variables than saying oh well I got my rent, so I can survive. And even that isn't a given. The last sentence, the former is correct until the bank calls the loan due & the latter isn't guaranteed. You want to more or less work off a different premise:

fast solutions have slow problems

 What happens when the renter cannot pay rent? And as that happens, your next renters can't too?

How you moving?

The "old way" (fundamentals) never go out of style. It's like saying buying at retail and trying to sell at high, high retail is a good idea because the old way is no longer applicable. I'm not trying to be argumentative...I've just seen many Andrews in my time who think they can use creativity to overcome the the basics (fundamentals). The horror stories are many but it's best to allow someone to get spanked financially because they learn better from their mistakes than from the mistakes of others. 

Most everyone is excited about investing...until the realities hit them squarely in the face. I've seen this kind of stuff posted for more than two decades and still can't believe that folks think it's a good idea. I truly hope it works out for you. I am all but certain it won't. Way too many red flags that "excitement" won't fix.