All Forum Posts by: Andrew McGuire

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. 

@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.