All Forum Posts by: Andrew McGuire

@Kristine Ann

Assumable mortgages are a totally different beast and very different than Subject-To. 

Assumable mortgages, in the 1-4 unit residential world, almost always mean that the buyer is going to occupy the property. Obviously, OP can't occupy 3 properties at once, so we know he was talking Sub-To. Exceptions to the occupancy requirement would be rare and likely almost always Non-QM mortgages.

The buyer, by definition, has to meet the lender's requirements to assume the mortgage, which typically require them to owner-occupy, and the mortgage is no longer held in the seller's name. 

I think that the assumable mortgage is the ultimate trump card for the house-hacker in today's market, and it is where I'd be looking if I was getting started in real estate today. Very supportive of investors using this tool, potentially for a few house hacks in the next few years.

Someone selling a property with an Assumable mortgage will probably know to market that assumable mortgage as a feature, if they have a good agent at least, and this will help them increase their pool of buyers.

I am worried that people are confusing themselves with this idea of "paying over market" - no. Do not pay more than you think the property is worth! Pay at or below what you think the property is worth, and finance it with the best tools available. 

Earlier in this thread, you claim to be buying 3 properties of this type in a month or so. That's easily $1M in purchase value, perhaps closer to $1.2-$1.5M. 

I've been doing this ten years, and have amassed a multi-million dollar portfolio that is beginning to approach 8-figures. I have never been on a shopping spree like yours in my time on that journey.

So, you are no longer a "little guy".

Now, let's address your statement that appears to infer that you are "helping people sell who have no other option." 

Here are ways to help a person in foreclosure: 

- Encourage them to contact an agent and get a market opinion of value

- Encourage them to look into various personal and HELOC financing options - if there is equity in the property, then a bridge loan like this can help them buy enough time to sell and realize that equity. A pure soul might even offer them a market loan product in second position personally.

- Let them list the property and make an offer in the context of the market. 

In most cases, this will be the right outcome for the seller. In my view at least.

The thing is - you are an agent! If you just approached people like this, you'd ACTUALLY help them out and probably get paid either way!

Now, IF we were to get into the world of a subject-to acquisition, the occasional ethical buyer might look like this:

- Extremely well-capitalized. Could easily pay off entire loan balance or inject a large amount of equity in order to refinance and still make the deal work.

- Puts material equity into the deal, in the form of cash. 

- 750+ credit score

- Pays legal fee for seller to have representation from lawyer to walk them through the terms of the subject-to deal, including making it very clear that there are extremely real, and potentially devastating risks in the event of buyer default.

Irresponsible/unethical Sub-to buyer looks like this:

- Poor/no credit 

- Would not qualify for the mortgage they are taking over payments for, much less a new mortgage if a forced refinance event happens.

- Is attempting to get 100 subject-to deals, but is not even capitalized to pay off or inject enough equity to refinance a single one of the acquired deals to have it qualify for refinance, much less a few dozen of them. 

Andrew - you have posted a thread with an attention-seeking headline making it seem like this is a good strategy. I feel it HAS to be called out as the opposite.

Are you a little guy? Not according to your own posts. 

Are you a responsible subject-to buyer? Sure doesn't seem like it to me.

I think you are creating tremendous risk for your sellers, who would be far better off facing foreclosure now, where they at least recover most of their equity, then risking an unknown buyer mismanaging their asset as part of a huge pool, creating the very real risk that they may still have to face foreclosure in the future, at or below the current asset value, and after they thought they had moved on from the deal.

And, to answer your question about what should the little guy do... though, as we've already established, you are attempting to get 100 of these deals... it seems like you have the means to purchase three deals in a matter of months. I think that you might find a better risk-adjusted return for you personally, and better for your sellers by far, to simply buy one deal instead, at a more conservative capitalization, with more money down. Having done this myself, I can say that this is still a very reasonable way to get rich over the next 10 years, but without putting yourself and others at incredible risk.

You can still be responsible. You haven't gone too far... yet. IF you stop here, fortify your position, terminate contracts on these two deals, and commit yourself to ensuring that the one seller who has already entrusted you with their credit and financial future for the next few decades is not let down. 

This conduct, in my view, is not something to brag about.

Negative equity?  Sounds like a term car dealers use when you trade in your existing payment for a new one.  

Equity by definition is a positive number after the dust settles.  Can't be negative. 

Anyway, nobody checks back in after their enthusiastically shared idea fails, but I would wager this will. 

I get low DP, being creative and all that, but I bet skipping proper title DD on top of not knowing how to handle hazard or title insurance beneficiaries will blow you up. 

@Jay Hinrichs Ah, the sub to guys, yeah.  They are very cringe.  "Subject to" is more of a wholesaler thing preying on vulnerable populations, though, isn't it?  This sounds more above board.

I've actually started seeing assumable mortgages being marketed with normal listings recently. I was wondering how it worked in practice.  A 3-3.5% mortgage would be a huge selling point. 

Let me rephrase: you're buying a home above market value by assuming a low interest rate mortgage? I like that you've taken over that lower interest rate mortgage and that you're comfortable with the numbers. Sounds like they are higher quality SFH's as well. Sounds awesome!

I would just caution you with getting too enthusiastic and overbuying and not having enough cash reserves per property. You need to think of your worst-case scenarios, like vacancies, rent decreasing, fines, fire/water damage, and getting sued.

Agree 100 on the reserves, lucklily on the wraps I will build my cash reserves since I’m buying at a lower down payment then the end buyer I’m wrapping to. The ratio I like is 1 hold to one wrap for now.