#1 Creative Real Estate Financing ContributorPosted @Ken M.
Where and how can I most efficiently learn about subto in full detail? Any recommended reading materials, please.
Thanks.
If you are not well capitalized, meaning you can not pay off the loan if called, stay away from sub to.
Yes, I've heard this before and therefore, for the time being, if I get involved in any sub to deals, I'll keep them within the 200k limit (as I can pay this off if push comes to shove).
However, I would still like to learn more about sub to, any guidance concerning reading materials would be greatly appreciated.
Perhaps valid concerns. I don't see how they relate to wanting to educate myself or asking for reading recommendations.
Zach, If you search Pace Morby on YouTube. He has an entire community that he teaches. He puts a lot of free content out there to learn from.
When his followers came on here about a year ago and spammed these forums with cult-like nonsense posts, I tried to watch a few videos of his and realized right away that a lot of what he was saying is very questionable. Whenever someone contradicts themselves in the first 30 seconds of a video, it makes me question everything they say after that.
This is the 2nd thread recently where people espousing his teachings have had issues using sub2 (see the recent one here from someone who was warned about the high risk of the strategies he teaches about a year ago but said he should be trusted "because he had a TV show on A&E": https://www.biggerpockets.com/forums/50/topics/1225630-due-o... can't make this stuff up). I expect there will be many more issues with these transactions moving forward.
Sub2 is a risky strategy for a long term buy and hold as the longer the deal structure stays in place, the higher the chance that issues will arise (like issues with the loan servicer, insurance, seller filing for bankruptcy, seller dying, seller realizing their DTI ratio and ability to buy their next property is negatively effected and becoming upset about it like in your case, due on sale clause being called, etc.). Much better as a short term acquisition strategy for flips IMO but always a high-risk strategy that should not be practiced by anyone who doesn't have the liquid capital to pay off the loan if needed. Just my opinion.
All of this. Personally, I like Pace and think he is a smart guy who cares about helping people, but the empire has overtaken the vision. The SubTo community has become bro-fueled tupperware sales and Acme/Avon downlines.
Anything creative is best done with complete transparency and the entire premise of SubTo is not transparent. It's rarely fully transparent to the seller and never to the original lender. A lot of people get themselves in trouble by acting as a conduit to mild fraud or just general deceit within the rules.
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Hmmm, he is bragging all over Youtube how he is making $150,000 from one guy's equity, on one transaction, by bailing him out of foreclosure.
Who is he "helping"?
In fact, he says he transferred the title to himself, to "protect" his "investment". He is encouraging his tribe to send him leads so he can do more of these. He is polluting subto. No wonder he is disliked on Bigger Pockets.
I mean originally, not now. Now it's an out of control machine with a lot of financial incestuous relationship in the tupperware farm.
#1 Creative Real Estate Financing ContributorPosted @Ken M.
Where and how can I most efficiently learn about subto in full detail? Any recommended reading materials, please.
Thanks.
If you are not well capitalized, meaning you can not pay off the loan if called, stay away from sub to.
Yes, I've heard this before and therefore, for the time being, if I get involved in any sub to deals, I'll keep them within the 200k limit (as I can pay this off if push comes to shove).
However, I would still like to learn more about sub to, any guidance concerning reading materials would be greatly appreciated.
Perhaps valid concerns. I don't see how they relate to wanting to educate myself or asking for reading recommendations.
Zach, If you search Pace Morby on YouTube. He has an entire community that he teaches. He puts a lot of free content out there to learn from.
When his followers came on here about a year ago and spammed these forums with cult-like nonsense posts, I tried to watch a few videos of his and realized right away that a lot of what he was saying is very questionable. Whenever someone contradicts themselves in the first 30 seconds of a video, it makes me question everything they say after that.
This is the 2nd thread recently where people espousing his teachings have had issues using sub2 (see the recent one here from someone who was warned about the high risk of the strategies he teaches about a year ago but said he should be trusted "because he had a TV show on A&E": https://www.biggerpockets.com/forums/50/topics/1225630-due-o... can't make this stuff up). I expect there will be many more issues with these transactions moving forward.
Sub2 is a risky strategy for a long term buy and hold as the longer the deal structure stays in place, the higher the chance that issues will arise (like issues with the loan servicer, insurance, seller filing for bankruptcy, seller dying, seller realizing their DTI ratio and ability to buy their next property is negatively effected and becoming upset about it like in your case, due on sale clause being called, etc.). Much better as a short term acquisition strategy for flips IMO but always a high-risk strategy that should not be practiced by anyone who doesn't have the liquid capital to pay off the loan if needed. Just my opinion.
All of this. Personally, I like Pace and think he is a smart guy who cares about helping people, but the empire has overtaken the vision. The SubTo community has become bro-fueled tupperware sales and Acme/Avon downlines.
Anything creative is best done with complete transparency and the entire premise of SubTo is not transparent. It's rarely fully transparent to the seller and never to the original lender. A lot of people get themselves in trouble by acting as a conduit to mild fraud or just general deceit within the rules.
.
Hmmm, he is bragging all over Youtube how he is making $150,000 from one guy's equity, on one transaction, by bailing him out of foreclosure.
Who is he "helping"?
In fact, he says he transferred the title to himself, to "protect" his "investment". He is encouraging his tribe to send him leads so he can do more of these. He is polluting subto. No wonder he is disliked on Bigger Pockets.
#1 Creative Real Estate Financing ContributorPosted @Ken M.
Where and how can I most efficiently learn about subto in full detail? Any recommended reading materials, please.
Thanks.
If you are not well capitalized, meaning you can not pay off the loan if called, stay away from sub to.
Yes, I've heard this before and therefore, for the time being, if I get involved in any sub to deals, I'll keep them within the 200k limit (as I can pay this off if push comes to shove).
However, I would still like to learn more about sub to, any guidance concerning reading materials would be greatly appreciated.
Perhaps valid concerns. I don't see how they relate to wanting to educate myself or asking for reading recommendations.
Since law is is difficult for some people, let me be more clear
There are various codes that can be violated when buying properties (the definitions are easy to find with a quick search)
"shall be fined not more than $500,000, imprisoned not more than 5 years, or both."
FBI:
Foreclosure Rescue Fraud
These con artists convince desperate homeowners that they can save a house from foreclosure if the homeowner deeds the property to them and pays an exorbitant fee up front.
https://www.fbi.gov/video-repository/newss-foreclosure-rescu...
18 U.S.C. §§ 1014, 1343, 1344, 1349, 1961, 1963 (2024).
#1 Creative Real Estate Financing ContributorPosted The 1% "rule" is just about dead everywhere outside of the midwest and some places in the south that are still relatively cheap. Price to rent ratios have skyrocketed everywhere and it's pretty unlikely rent will ever get to a point where it evens back out because at those levels it's just as cheap/cheaper to buy (not to mention most renters can't afford anything like that).
Well, of course - that's obvious - but most people in most places in the US are going to spend too much on their purchase because that's what's available. Years ago I bought houses for $25k in my market. Pretty easy to make 2% or more when you're spending that kind of money. These days I can't buy a lot for $40-50k. Any house here that's sub $100k, on or off market, is going to be so bad it will need $30-75k in rehab. Here once you start passing $1500 in rent your pool is getting pretty shallow. I'm sure I could go to some midwest markets or even some more depressed markets in my region and get better pricing, but that's out of my wheelhouse at this point in my life as I have no desire to learn new markets when I'm closer to the end than the beginning.
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Sure, obvious but over looked. A property is worth what a willing seller will take from a willing buyer.
Is it possible to buy a property in San Diego low enough to get 1% from it, yes. Is it possible to buy a property in Seattle low enough to get 1%, yes. And is it possible to buy a property in Chicago low enough to get 1%?, yes
Of course, if you look the right ways. And What does it take? It takes getting off the road everyone else is driving (the MLS) and putting some work into it. Using your smarts. There are wholesalers in every major city in the country and they are buying at 70% to 90% of value all day long, every day of the week. You can too, without being a wholesaler or an agent.
You can walk into a mall to a jewelry store and buy gold, which is simple, but you pay a huge markup. Same with houses and the MLS. Huge markup.
Most people choose to do things the easy way. But that wasn't the question, The question was CAN you do it, not HOW do you do it.
Just because someone is buying at 70 to 90% of value doesn't mean anything with respect to the 1% "rule". In my market, right now, most anything you bought at 70% of value still wouldn't meet that rule. I guarantee virtually no one is meeting that rule in SD because they're all on here looking to buy in Cleveland or Detroit because in that market price to rent ratios are so askew that buying at a 50% discount probably doesn't get you the 1% rule.
If we're going to just talk in hypotheticals, of course anything is probably possible anywhere but highly unlikely.
. You speak correctly that "anything is probably possible anywhere but highly unlikely" to you.
You are also answering a question that wasn't asked. Which is accurate by the way. Most people won't put in the work.
His question "The question being, does this still hold true for Arizona?"
My answer, yes I currently am buying a $165,000 property in Phoenix (not listed on the MLS) using one of my methods to find, using only $5,871 plus closing costs of my money. It will rent for $1,500 a month. It, will go up next year. I will be into it about $9,371 with closing and have a payment PITI including HOA of $1,205. I do not possess any special list. I simply know where to find the nuts; under the tree of course. I do have reserves to cover contingencies.
Let's just say, I'm satisfied with those numbers.
Had I had to use a bank, I would have had to put down 20% for $33,000, plus closing and my payment on the remaining would be $1400 PITI including HOA.
I am working on two others in the $350,000 range with the same ratios. These I might assign to others. There are properties people, just put in the work.
#1 Creative Real Estate Financing ContributorPosted If you are considering buying using Subject To - Subto, it's important to know what your exit strategy is.
Talk to a mortgage broker (not a bank) and ask if that is a property you will be able to get financing on in the event you have to refinance quickly, because the Due On Sale clause was called.
And
Talk to a real estate agent about how much you would have to bring to closing in the event you had to sell quickly. Generally, it's 8% to 10% of the sales price to sell a property. For a $300,000 property it could be $30,000.
Then, do you have that much cash or credit available to you, in the event of a Due on Sale call?
#1 Creative Real Estate Financing ContributorPosted Just seems to me that buying at sub 1% is almost not worth it. The cash-on-cash return is obviously much lower. I can make offers that would cause the 1% rule to hold, but these would often be at around 60% of asking price or market value. I know deals such as this get done all the time, but I seem to have little luck targeting sellers that are motivated enough.
perseverance, and once you get the hang of it, they keep coming along.
,#1 Creative Real Estate Financing ContributorPosted The 1% "rule" is just about dead everywhere outside of the midwest and some places in the south that are still relatively cheap. Price to rent ratios have skyrocketed everywhere and it's pretty unlikely rent will ever get to a point where it evens back out because at those levels it's just as cheap/cheaper to buy (not to mention most renters can't afford anything like that).
Well, of course - that's obvious - but most people in most places in the US are going to spend too much on their purchase because that's what's available. Years ago I bought houses for $25k in my market. Pretty easy to make 2% or more when you're spending that kind of money. These days I can't buy a lot for $40-50k. Any house here that's sub $100k, on or off market, is going to be so bad it will need $30-75k in rehab. Here once you start passing $1500 in rent your pool is getting pretty shallow. I'm sure I could go to some midwest markets or even some more depressed markets in my region and get better pricing, but that's out of my wheelhouse at this point in my life as I have no desire to learn new markets when I'm closer to the end than the beginning.
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Sure, obvious but over looked. A property is worth what a willing seller will take from a willing buyer.
Is it possible to buy a property in San Diego low enough to get 1% from it, yes. Is it possible to buy a property in Seattle low enough to get 1%, yes. And is it possible to buy a property in Chicago low enough to get 1%?, yes
Of course, if you look the right ways. And What does it take? It takes getting off the road everyone else is driving (the MLS) and putting some work into it. Using your smarts. There are wholesalers in every major city in the country and they are buying at 70% to 90% of value all day long, every day of the week. You can too, without being a wholesaler or an agent.
You can walk into a mall to a jewelry store and buy gold, which is simple, but you pay a huge markup. Same with houses and the MLS. Huge markup.
Most people choose to do things the easy way. But that wasn't the question, The question was CAN you do it, not HOW do you do it.
#1 Creative Real Estate Financing ContributorPosted I see some foreclosures where the bidders must buy subject to the first mortgage. The auction price seems to assume that the proceeds will be applied to repay the first mortgage and the second mortgage. For example, the property is valued at $300,00. The property is being sold subject to $175,000 first mortgage. Second mortgage is $50,000. Property sells for $220,000. How does the buyer ensure that the proceeds are used to pay the first mortgage?
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I believe you mis-understand the process. In the jurisdictions I'm familiar with,
when auction is in 2nd position: There is a lot of nuance regarding foreclosures and each state varies
1. Never trust their valuation of the property. Do your own research.
2. They list only either the opening bid for the property they are auctioning off ($50,000) or they don't list a number at all
3. NONE of the money raised from the auction of a 2nd goes toward the payment of the 1st (that is why they call it "subject to the first")
4. "Being sold subject to the $175,000 first mortgage" means that if you are the winning bidder on the 2nd, you are buying it WITH the responsibility to pay off the 1st or make those payments.
5. If the 1st then goes into foreclosure, you are in deep trouble, you have to pay it off or lose your money on the 2nd AND lose the property.
6. You can't get "clear title" until all leans are cleared, whichever way that happens
SOMETIMES, but not frequently, the 1st and 2nd will combine and both will be included in the auction. That would almost always be from the same lender who has a 1st AND 2nd on the property and they are just fed up with the owner and are taking the opportunity to get out of a bad situation entirely.
Sorry, it's complex enough that it isn't a 15 minute class.
#1 Creative Real Estate Financing ContributorPosted @Ken M.
Where and how can I most efficiently learn about subto in full detail? Any recommended reading materials, please.
Thanks.
If you are not well capitalized, meaning you can not pay off the loan if called, stay away from sub to.
Yes, I've heard this before and therefore, for the time being, if I get involved in any sub to deals, I'll keep them within the 200k limit (as I can pay this off if push comes to shove).
However, I would still like to learn more about sub to, any guidance concerning reading materials would be greatly appreciated.
#1 Creative Real Estate Financing ContributorPosted The 1% "rule" is just about dead everywhere outside of the midwest and some places in the south that are still relatively cheap. Price to rent ratios have skyrocketed everywhere and it's pretty unlikely rent will ever get to a point where it evens back out because at those levels it's just as cheap/cheaper to buy (not to mention most renters can't afford anything like that).