All Forum Posts by: Andrew McGuire

@Andrew McGuire

I am not here to promote or denounce your above method of choice. I'm not sure if you have been on Bigger Pockets for a long time or not. My first account that I had several years ago before I closed it I discovered that creative finance as for as Sub2 was frowned on by Bigger Pockets members. There's obviously reasons that such a method could be abused in the wrong hands. (Why in the world Bigger Pockets did a book with Pace Morby is totally oxymoron from the position they used to be at.??????)
With that being said, unless you’re trying to promote somebody’s Sub2 training or gather folks for your own training, there’s some things that you don’t come on Bigger Pockets bragging about. ( IMO)

I guess you see that now??  Just saying some times it’s best for people to avoid the bragging especially on certain topics.

Even if you did hold the golden key to success what would cause you to want to create your own competition unless you was trying to sell some program, mentorship, or some other benefit from doing so? If you’re not trying to sell this particular method for some personal gain, you would gain more by simply keeping some things to yourself. 

P.S I bought some properties over the years Sub2, but you don't see me on Bigger Pockets running my big mouth bragging about it. Lol.😂

 Reply would be as appropriate for wholesaler as sub to, maybe more so.   

I have offered sub to, so I do not want to come across against sub to.   But the seller is taking on substantial risk compared to traditional sales.  If the buyer is starting with negative equity, the risk is even larger.  

Normally the buyer in these do not have significant risk, but in the case of negative equity if the loan gets called, the buyer is more screwed than normal.  There will be no way to finance at high percentage of what is owed due to in effect buying the sub to position.  Buyer either brings a large pot of money but to what end? Or they let foreclosure.  Buyer is out effort.  Seller is out house and credit impacted for years. 

Others means to start is OO FHA at 96.5% or non FHA at 95%. NACA another OO option. Or find good BRRRR that allows extraction of all or near all investment. There are options for those starting out other than over paying to purchase a sub to.

RE investors should strive to pay less than market price not greater than market price.  The goal is not to own units, the goal is to make money.  

Good luck

Here’s my take on subject to

1. Can be Legitimate method of purchasing property, especially when outside financing is expensive or unavailable

2. Easy to “abuse” placing seller in potential precarious position and buyer in precarious position if default occurs and seller takes legal action

3. With interest rates double rate on subject to loan, lenders have incentive to accelerate the note

4. With technology and on line county property records, lenders have the means to monitor deed transfers 

5. Most dangerous situation for sellers are buyers who are (1) inexperienced (2) undercapitalized and (3) over extended 

6. Buyer is not “helping” seller; a best this is a fair market transaction with both party operating in their own best interests.  Buyer is not Mother Teresa.

7. The whole transaction works better when property is commercial or investment and both parties are investors.  

IMO, the problem is not subject to per se; the problem is that there are now hordes of inexperienced, undercapitalized wanna be investors trying to buy homes “subject to “ with no idea or thought as to the consequences of a default. As a result we can expect legislative initiatives in the future that place curbs regardless of legitimacy of any individual transaction. 

I too want to continue accumulating rental real estate. But to continue getting financing that means my properties need to cover 30% above expenses. That means positive cash flow.is a must if I want to keep growing. I can't break even and just pay down the debt to increase my equity.

I look at this and ok you overpay and are paying down $7200/year in principal

You take 3 years to break even but it’s really 6 years because of selling costs on a property.

I would not assume appreciation in homes with reports showing average pay increase of 3% and average prices increasing 5% (new York fed latest q1 release) and debts are at all time highs.

Original poster better not get into a cash crunch as if they do they will be in bankruptcy in a New York minute.

I need to read up on "subject to" verses assumable mortgage.  I was under the impression they were completely different.  I thought with an assumable mortgage, you go through the lender and replace the name on the mortgage.

@Scott Trench I was actually thinking that this would be great for regular, non-foreclosures.  You could offer someone with a 3.5% mortgage 25k over market value so they could use that 25k to cover the high interest rate on their next house.

@Andrew McGuire

Thank you for the response. FWIW - I also hated my own line in Set For Life about listening to music being a waste of time, and ripped that out of the revised edition the first chance I got :). That chapter was completely redone.

I tried to throw a bone here that there is absolutely a use case for Subject To in certain situations. I'm not against Sub-To in all cases.

What scares me, for you, and for anyone else reading this post who thinks this is a good idea, isn't the Subject-To, it's the "All-In on Subject-To" approach. 

I think that if you were doing a one-off, and found a great deal like this, I'd be wary, but still supportive. I am sure that you could responsibly handle one person's mortgage over a few decades, and it could be a great outcome. Maybe as time passes and you have a well-capitalized position, you can do another, and another. Again, as your position enables you to safely exit the subject to mortgage either by paying it off, or refinancing it and still being able to hold onto the deal.

But, the fact that you are doing three at once, and looking for 97 more in short order is what rattles me. It's unclear if your position would enable you to refinance or pay off any of the mortgages. I strongly caution you to remember that the penny does not double forever. It is not linear. If you are all-in, not with just your own money and BofA's money, but also with 100 people who are not good with money (or just who are unlucky) and something hurts your market, or a few of your properties, then a chain reaction can wipe out and devastate many lives.

Losing "OPM" is not risk-free for the person leveraging OPM. Those OPM, if they experience huge losses or ruin at your hands, can turn into VAOP (I made this up - "Very Angry Other People" - like it?) who may chase you around the internet with a digital pitchfork. OR... in some cases, might turn up in real life.

Real Estate is not *just* about cash flow. It's also about all the other things that allow you to hold onto property throughout the market, property, and tenant lumps and bruises that get thrown at you over a long period of time. It's also about exit strategies - and this approach only as represented by your post only has one - attempt to hold on long enough for appreciation and amortization to create equity, giving you the option to sell.