All Forum Posts by: Marco Bario

So hopefully all are clear:

By definition, a SubTo buyer does receive title. It happens to be subject to existing finanacing that is not in the buyers name. If the financing were in the buyers name, it would be an assumption.

When you say you "joined" SubTo, do you mean to purchased a property subject to existing financing? 

Great response @Derek Dombeck. I second all of it.

@Brian Dvorak - A larger down payment would be advised if you can get it.  

@Sean Harper – 

Yes, technically, you can sell with existing financing in place. The buyer's financing will wrap the existing debt (called underlying debt from that point forward). There are risks to be aware of such as a due on sale right held the underlying lender. Lots of disclosure needs to be given by you to your buyer.

But if you're up for being a landlord, maybe this is a fix-and-hold.

Is the HELOC against your primary residence?

Does it begin to amortize after 12 months? (usually something more like five years)

Will the total principal balance of the HELOC be $120K - $130K after renovations?

Does your projected cash flow include debt service and other expenses after the refinance? 

@Tara Montgomery

If you're selling, it's about the payer. 

If you're selling a single-family home to an owner-occupant (I don't know if you are) – the "perfect" seller-financed note is 20% down, 10% interest, 10-year term. But that's a unicorn. 

Why? There's a balance between what's good for the seller and what works for the buyer.

If the buyer can't afford the payments, they've been set up to fail. No one wants that.

In today's environment, try to set the interest floor at 7%... more of you can make it work. Avoid a 30-year term unless the payments aren't affordable otherwise. 15 - 20 years if you can. Minimum 10% down. I'm not a fan of balloons... but if there is one, I suggest 7 years or longer. 

You can look at area comparable rents. Keeping your payment in the range of rents (allowing for expenses a homeowner will pay and a tenant doesn't) tends to keep owner-occupants on track.

Your attorney or an attorney-owned title company can create the docs and manage the closing. There's something called a "lender's title policy" you should ask them about and have your buyer pay for at closing. 

After you close - use a loan servicer to collect payments. Your promissory note can require escrowing taxes and insurance. A loan servicer can collect this and make tax and insurance payments. Other benefits here also.

Finally... the best advice I can offer is to use a third-party underwriter. They'll take a loan app, pull credit, verify income, and verify the ability to repay. Your buyer can pay for it at closing.

Why is he selling? 

Tired of management but likes cashflow? You could make him a master lease offer. Or master lease and an option. 

He’ll continue to receive cashflow and depreciation. 

You’ll have control of the asset and whether there’s an option or not you’ll be first in line to buy. 

Hi @Tara Montgomery

I recently gave a similar answer to a similar question.

The beauty of creative real estate deals is you can craft an offer to solve the seller's problems. Those are most likely to be accepted. You can also do it in a way that benefits you.

First, figure out what payment the property can afford. You can't pay more than that.

Then, sit down with the seller. Build rapport. Ask why they're selling and what they plan to do with the money. If it's currently an investment property, property taxes may be your best friend. The seller may face a big tax bill if they receive a pile of cash at closing. Seller financing helps them.

The takeaway is you can't craft an offer unless you know what problems the offer solves.

Also - you don't have to offer interest at all. An offer as simple as "I'll pay you $1,500 per month for 360 months" is a legitimate offer. Especially if they aren't sharing the info I mentioned above. Then if they say your offer won't work, you can respond. "oh, why is that?"

@Willie Holdman

Beyond purchase, the issues I see have to do with...

...management. You or your LLC can't do any work at the property - including property management. You will need to use 3rd party management and others to perform work at the home.

... further expenses and improvements. When you split up the purchase that way, all subsequent money must be contributed in the same ratio. If the IRA owns 40%, it must pay 40% every time there's an expense. That means it has to have the money.

...accounting. In part because of what I mentioned above, accounting has to be very detailed. Mistakes leading to funds being handled improperly could lead to the IRS blowing up the entire IRA account as a full taxable disbursement.

...liability. My retirement account owns assets such as notes that won't cause it to be sued if someone slips and falls. Direct ownership of real property is different.

@Travis D.

I have one. Message me, and I'll be happy to share it.

@Jonn Vidal

For me, that would be the end of offering furnished rentals.

Although - could you provide a separate "furniture lease" with it's own rental agreement? Furniture is personal property, and it's unregulated. 

I'm a new Buildium, but I chose it because a mentor of mine who is an excellent property manager runs her 60+ single-family rentals on the platform and uses it to handle all of her business accounting (including flips and investor disbursements).