All Forum Posts by: Keith W.

Ah! Good point. Thanks. 

In my research on the "Subject to" financing technique, some are referring it to a "Wrap-Around Mortgage". 

My understanding of "Subject to" is that we would create an agreement that we would be taking over the payments in exchange for control of the deed, etc.

When looking a the "Wraparound Mortgage", specifically, it looks like there is a spread between what is paid to the seller and his mortgage lender.  

In other words, in a "subject to deal", if the mortgage payment is $1000K per month we pay that amount. On the other hand, for "wrap mortgage" we're paying the $1000K plus an additional amount based on an agreed to purchase price. 

Is this correct, or are these just two various ways it can done? 

I guess I would. Who is responsible for repairs, taxes and insurance, and what is the incentive for the owner to let me lease it? 

@Brian Gibbons You're that teacher that gave us all that homework in school! I appreciate it though. I did come to the conclusion that Single-family residential won't cash flow. Especially in Boston. We do have a lot of "transitioning" neighborhoods around here where people owned houses for years that's in bad shape but the ARV's are astronomical! My Grandmother's house was bought for $10K and was appraised at $640K. That's before much-needed repairs and updating!

Just a couple years ago, that would've been considered a war zone neighborhood. I'm in a middle-class suburb and was lucky to appraise at $643K and my house is 10 years old!

But I digress. I know what a sandwich lease, but I have to look into Master Lease. Don't know what that is. 

Thanks again. 

@Steve Vaughan 

What is a 22? 

I think the transaction was in Tenessee. Somewhere south so maybe a red state. Im in Massachusetts. People going through foreclosures are just out there on there own really. I went through it years ago and I think something like what Im talking would have helped me terms of not having the foreclosure on my credit which kept me from getting a decent apartment. Had no money to hire a lawyer, the house had issues that I had no money to fix to get the house ready to sell. I got out of that actually by filing bankruptcy. 

I meant to mention to you before that my preferred strategy for Subject 2 is to fix and sell in short time frame as you said. Like 6 months or less. 

@Brian Gibbons Thanks a bunch. I will check it out. 

Thank you!

@Brian Gibbons Thanks so much for those resources. I know people pay big money for that info. I read over the excerpts but will definitely dig deeper. 

@Steve Vaughan As far as working with pre-foreclosures, the plan would be to have different options based on the scenario. So for instance, we wouldn't do an LO's that needs work. If by using the 70% Rule, the work would bring the property up to a good ARV, we may purchase it outright to flip, or hold, or however, the numbers work. If there's equity already there, we would definitely be looking to purchase outright, again using the 70% rule. I guess our thing is coming up with solutions for owners with low or no equity and facing foreclosure.

Can we look at this real-world example?

A woman owned a property that her family members were living in and they had stopped paying the mortgage without her knowledge. By the time she found out, they had moved and the mortgage was about 4 months not paid and in pre-foreclosure. She tried to list the house to sell but didn't put in much effort. Because the property had little equity, she owns a home she lives in crosstown, she was going to just let the house go into foreclosure. 

An investor contacted her about selling the property. She agreed to a Subject 2 deal where the investor paid up the arrears to make the mortgage current. They did all the legalities, (Land trust, disclosures, Deed, etc). He didn't give her any payment consideration. (I am advised that you always give the owner some payment)

This investor then brings in a Tenant Buyer on a Lease / Option Deal who pays a non-refundable $20K "Option Fee" and $1000 per month rental payment. (the mortgage payment is $700)

At the end of three years, this Tenant Buyer gets their own financing and buys the house at a predetermined price of $150K. (The house was valued at $135K at the time. During the rental period, the TB paid extra towards the principal, and the price of the house was inflated a little to compensate for value increase during the 3 year period.)

Just to be clear, it is your position that this is not a viable way of doing business at least in the pre foreclosure market? 

Not trying to be any kind of way about this or go back and forth, it's just like with COVID19, one leading expert says you don't need to wear a mask if you're not sick... turn the channel and another leading expert says everybody wears a mask! NOW! Lol

IM SO CONFUSED111

Thanks @Brian Gibbons @Steve Vaughan for your input. Is it fair to say that everyone has their own viewpoint or investing niche that they feel comfortable with? As a newbie investor (haven't did a deal yet), I'm trying to figure out which niche or tract I should follow. What I've found is that you can have a bunch of investors who swear by sub2 / option lease investing. Then other investors that say stay away from them!

For example, I'm just starting to feel comfortable that the bank's Due on Sale Clause is not a law, but a rule the banks have in place. Although they are enforceable, I have investors with 20 years experience say they've never had one called. Then I would have other guys, like in this post express this a concern. As a  new investor, maybe I need to choose my path and filter the information coming in. Just wondering how was it for you guys when starting out. 

That being said Brian, you pretty much broke the whole thing down for me. That's the info I was looking for thanks!

And Steve, thanks for alerting me that there are equity skimming foreclosure rescue laws. I've never heard of that. I will definitely research it. 

I appreciate both of you guys' time and input. I'd like to hear your thoughts on the whole newbie investor thing I talked about. 

This is a 30 thousand feet overview of the process. Correct me if I"m wrong, then a couple questions at the end.  

1. Motivated Seller has a property in pre-foreclosure
2. We set up a Subject 2 agreement with the seller
3. We pay the arrears to make loan current and pay mortgage going forward
4. Have a Lease Option Tenant with an annual lease that auto-renews (Option expires after 3 years)
5. This rent covers the mortgage plus provides cashflow
6. After 3 year term, Tenant purchases the property at a predetermined price minus downpayment (maybe a portion of rent goes to the principal?)

Questions: 

What would be a fair consideration to pay seller to walk away with? Perhaps a percentage would work here?

How much should we expect the tenant/buyer to pay for the non-refundable "option" payment?

When the tenant is ready to purchase, do they get their financing from a traditional bank? 

Does this mean they have to come up with another downpayment?