All Forum Posts by: Jared Prevost

Hey Y'all, curious what other investors are thinking about where prices are going to be by the end of 2024.

It's pretty unbelievable how sensitive buyers are to interest rates right now! I just read an article CNBC put out showing that after a 0.06% decrease in mortgage rates last week (6.81% => 6.75%), there was a 10% bump in mortgage applications. On a $350k 30-year loan, that’s only a difference of $14 a month in payments.

If we get back into the 5% range for mortgage rates, you guys think we'll see more than 8% price growth on average by year-end?

 Appreciate the recommendation, Josh!

Brian, we'd love to send some deals your way, we put out a handful of cash and creative deals every month. I'll shoot you a message with details

@Logan Lehmkuhl

As @Scott E. mentioned, there's a lot of really good information on BP lately for Subject To.

Here are some considerations for buying sub to

- Subject to can be an awesome strategy BUT if structured incorrectly there could be serious ramifications for both you and the seller. I would recommend searching for a lawyer experienced in structuring these transactions and purchasing entities in Kansas so you can avoid liability and make sure you and the seller are not taking on additional unnecessary risk

- Just because it's sub to doesn't mean it's a deal. Make sure you're hitting your cash-on-cash metric, or if you think it could turn into a sub to flip, make sure you're abiding by your flipping profit criteria

- You don't assume the loan. The loan will stay in the name of the seller, you will catch up any and all arrears on the loan and login into the seller's loan portal to make the payments. Assumability may be an option, but I don't personally know anything about true loan assumption. On sub to you take responsibility for making the payments (you might call this structuring a wrap agreement with terms exactly equal to the existing mortgage).

- If it's helpful to you, shoot me a direct message and I can send you a creative finance deal calculator to help you underwrite the deal. It's a very simple 'back of the napkin' type of tool you help you quickly evaluate an opportunity.

"It impacts future purchasing power"

Purchasing power - the financial ability to buy products and services.

Please explain how your purchase price on a creative finance deal impacts your financial ability to buy products and services (or more real estate) in the future...

The only thing that affects this ability are your reserves, downpayment, and cash flow. I think you may be missing the point that prices are equivalent to the present value of discounted future cash flows. When you buy seller finance at a lower interest rate than the market interest rate, you are not only (potentially dramatically) increasing cash flow, but you are also lowering the discount rate on your future cash flows. Thus even at a purchase price higher than what comps would call for you can 'walk into equity'. Comparing prices on housing when interest rates are different is like comparing apples to oranges.

To clarify, I am specifically talking about creative finance, the subject of the question at hand. Personally, I don't know of any regretful seller finance buyers haha, maybe some people who bought using a bank loan. Don't get me wrong, there are bad seller finance deals, but every seller finance deal can be a banger with the right terms. Like I said, my business partner just paid $50k above Zestimate for a property in the spring and there aren't any regrets about $500 a month of net net cash flow :)

Respectfully, @V.G Jason I could not disagree more with your statement that price is critically important.

The fundamentals of finance are that the intrinsic value of an asset is based on its cash flow. In other words, what matters is not price, but that price is supported and justified by cash flow.

So, to the question @Sean Bramble is asking, how important is the purchase price? I would say purchase price matters but is a distraction more than anything else. Is it a bad investment to buy the rights to advertise on a billboard for $10 million? Not if it cash flows $3M a year!

In my opinion as an investor, the critical metric to hit is your cash on cash returns. Therefore, the downpayment and monthly payment become the most important variables to figure out.

The devil's advocate argument I suspect would go something along the lines of "Oh, yea that's great and all, but what happens when you need to sell?!" Simple you sell on creative finance, who wouldn't be happy to buy an asset without having to get a bank loan! You can wrap your existing terms.

Sean, if you'd like I can send you a creative finance deal calculator I created. It might be helpful for you in your underwriting process. A partner of mine paid $50k 'over' Zestimate for a single-family house this spring and it's an absolute home-run cash flow machine. Don't like purchase price distract you ;)

@Michael Germano At some point I'll have a download link with a video walking folks through how to use it.

For now, I'll just have to send you an email :)

@Michael Germano

Awesome, congrats on dipping your feet into the world of creative finance!

Unless you are purchasing far below the after-repair value at $165k, it sounds like you don't have a deal. Even if you can get rent up to $1,300, it sounds like you'd have very minimal cash on cash return and no loan paydown...

However, I would be happy to send you a creative finance calculator. Could be a really helpful tool for you to underwrite creative deals! I will send you a direct message (if anyone else reading would like the deal calculator, let me know).

Also, if you are looking to buy on seller finance, I would make sure the deed is transferred at close (don't buy on a land contract if you can help it).

Hey now, let's not make this a dichotomy of only having the option to sell or keep as a rental. This sounds like the perfect opportunity to sell the house on either seller finance or a lease option. I'll break down the benefits below

Seller Finance

- Sell the property without having to pay traditional closing costs of listing and expedite the sale process

- Defer capital gains and potentially keep yourself in a lower tax bracket so you are taxed at a lower capital gains rate. Bonus points if you sell at a higher price and charge 0% interest so you don't get taxed on income on the interest

- You have the potential to recollect and resell the property if the buyer defaults. I would recommend selling on a land contract so you don't have to sign over the deed to the house until the buyer pays off the note

- You get to help someone buy a home when they wouldn't normally qualify

- High interest rates means you may be able to lock in really attractive terms for your buyer

Lease Option

- Lease out the property to a tenant who gives you an option fee upfront with a future purchase price

- Tenant will pay above market rent and it becomes like a NNN situation, you are very removed as the landlord.

- If the property needs work, it's the tenant's opportunity to build sweat equity in their future home

- If the tenant does not execute the option, you get to re-lease the property to another lease option tenant

- If and when you do sell to the tenant-buyer, you avoid the traditional home selling process and associated closing costs

Hope that's helpful for you @Edward Giyo

@Scott E.

You are 100% correct in that when you buy subject to, you're almost always buying at or near market value. While it is possible to walk into significant amounts of equity subject to, it's an unlikely situation if you're pursuing the best interests of the seller.

Sub to is almost always a 'pain' sale and typically only makes sense (ignoring any hybrid scenarios) when there isn't enough equity for the seller to list the property and collect proceeds at the sale. That's why the pitch to the seller is always focused on moving quick and putting more cash into their pocket.

Sub to also poses significant liability (which also varies on the state). In my opinion, it's worth consulting with a real estate lawyer experienced with subject to purchases to get guidance on the best way to structure the transaction, your purchasing entity, and considering if you're planning on assigning or wrapping the deal. For that reason, not a great strategy for a beginner.

What I'm not following is the concerns over the lack of equity at purchase. If you have sufficient reserves, and the property cash flows day one in a market with strong economics/demographics, I don't see how equity at purchase is relevant. If you're looking to do a sub to & flip, then purchase price matters, but if you're planning on long-term buy and hold this is probably the best purchase strategy to maximize your cash-on-cash and rapidly grow your portfolio.

Additionally, sub to's are typically much more simple and straightforward to negotiate than a typical seller finance deal and will usually require less money into the deal unless there are significant arrears to be caught up.

@Frederick William if you like the idea of multi-family as an avenue to help you reach your financial goals, but don't have the necessary experience to underwrite, acquire, and operate an apartment complex I would leverage what you already have.

It sounds to me like your best bet would be to find someone who's already buying apartment complexes and find ways to help them in exchange for getting experience and connections that can help you do your own deals in the future.

The most straightforward way to accomplish this is to partner up with a deal sponsor as a limited partner. Typically this is a minimum of a $50k investment, projected returns in the mid-to-high teens, and a 3-7 year hold period.

I'll shoot you a message and we can talk more about it if you'd like