All Forum Posts by: Account Closed

@Scott Trench: I know you already know the following, this is for the people reading who should become aware, but don’t know to ask.

TLDR Part

Don’t buy properties off the MLS using "Subject To" & using a secondary lender hoping to do “no money down deals”. It won’t turn out nicely.

REASONS:

If you want to know the mechanics of why: Read the following

My real concern is a popular "guru" who has a Subto "community". He openly teaches and encourages his students to buy properties off the MLS at full price, using "Subject To". Then he uses lenders to fund the down payment & closing costs and gets money back at closing. So, he has "no money into the deal". (But others are at great risk as a result of his transaction.) (this is from analyzing his current video on “Due on Sale”)

You and I are both good at math and logic and know how this works. If you buy a $300,000 property off the MLS for full price and have the added costs of borrowing the down payment, of closing costs and cash out, you are overleveraged. He says that if the bank should call the loan due, you talk the bank into not going forward with the DOS. Good luck with that.

His back up is "deeding back to the seller and doing an Executory contract". Sounds good, but an Executory Contract violates the DOS. He doesn't seem to know that.

He doesn’t mention the options of refinancing or of selling.

So, if you try to sell the property for $300k and you are into it for over $300k, you have roughly 8% sale costs and you wind up with $275,000 at closing. That means you have to come in with more than $25,000 to closing. The people attracted to his "community" are not people who have $25k sitting around. They believe it is zero down, because that is how he teaches it. (It actually costs money to do a Subject To and you need reserves as well.)

The sale fails, the bank forecloses, the secondary lender loses all of their money, the seller’s credit gets trashed, and the buyer faces a lawsuit or two. It starts hitting the news and lawyers start looking for these opportunities.

** Here is an Actual Due on Sale for those of you who have never read one.

Please note that it says “the intent of which is the transfer of title by Borrower at a future date to purchaser.”

That is what an Executory Contract is. It's the intent to transfer title at a future date.

18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, "Interest in the Property" means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to purchaser.

If all or any part of the Property or any Interest in the Property is sold or transferred

19. Borrower's Right to Reinstate After Acceleration.

However, this right to reinstate shall not apply in the case of acceleration under Section 18.

***************************************

Instead of that nonsense, I teach that “You Can Not Buy A Property “Subject To” If It’s Overleveraged” and yes, there are solutions to the Due On sale clause, just not the ones he’s pushing.

@Scott Trench: I think the difference is this, in my markets, I buy in the $250,000 - $500,000 range. If I was to use conventional financing at 20% down, I'd need $50k to $60k for a down payment just to start looking at houses.

However, if I buy a property "off market" and buy enough below value, I have equity, in the event I need to liquidate. For instance, I just bought a property appraised at $750,000 for $525,000. Effectively a 30% discount. Yes, it needs a paint job and we'll add some value, but in a downturn of up to 30%, I'm covered. 

Why did they sell for $525K? Well, they saved $45,000 in real estate fees, (no realtor involved), they had bought a house elsewhere, they didn't want to go through the requirements of the MLS (fixing things) and they are like most people, "they want it now". I was a fast solution.

It's those who overleverage that are going to be hurting.

And I can't imagine the amount of work and hassle and risk that some investors get themselves into in the $35,000 to $100,000 markets, far far away from where they live. I buy where it's safe, where people pay their bills and where I don't have to worry about walking through the neighborhood at night.

I not limited by banks or by credit or by down payments.

It's not the number of doors that matters, it's the profitability and safety of the investment.

It's just a matter of mindset of how you get started in real estate and once you're satisfied with the way you do things, no worries.

Estimated values and ARV are just that, estimates, Even appraisals are opinions of the appraiser at that moment in time. The best you can do is find 3 similar houses located nearby that have sold in the last 3 months. You won't know what concessions were made or the type of loan but it's a "best guess". That is about as much as you can do.

An "on the fly guestimate" is to take all three and find the average.

Here's the thing, those are today's guesses. A flip can take 6 months, so you need to guess what the price will be 6 months from now and subtract all your costs and taxes from that, to get an idea if it's worth doing.

Another thing, your buyer will have an appraisal that is based on the best 3 comps within the last 3 months of your sale date. If you "over build" for the area, the appraiser will have a tough time getting comps and the loan might not close.

If you "cross collateralize" don't you run the risk of having all of your properties going into foreclosure at the same time in a down turn? Aren't you prevented from selling one off to cure the other if you cross collateralize? 

There are three ways to accomplish acquiring real estate faster than most people. 1. Start off with a lot of money. or 2. Buy fractional shares (invest in syndications like an apartment building that has say 100 units and now, viola' they have "100 doors" whereas that actually menas they own just own a hinge on each door but you get what I mean or 3. Using creative finance like Seller financing, Subject To, Lease Options, Land Contracts which is how I teach it and how I did it. Most of the properties I was into totally for under $15,000 didn't need a bank or credit check and no down payment. But, I did need some knowledge.

He says he does not personally teach any one. He said you learn from his videos. He just said in one of his videos that he has had 10 Due on Sales called recently and multitudes of students with the same problem. He was stating that to use it as an backdrop to tell people he has a backup plan. However, the backup plan violates the Due on Sale Clause.

That would seem to mean he has a problem with his approach. He doesn't cover how you pay off the loan if you over paid by buying off the MLS, which is where he is teaching people to buy properties. If you don't pay off the loan, you lose the house, the seller gets a foreclosure and you probably get sued. I think he has enough money to pay off a few loans, but you don't.

I can tell you more if you want to DM me.

Due on Sale: The right of the lender to accelerate the loan (make you pay it off in 30 days)

"18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, "Interest in the Property" means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests

transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to purchaser.

If all or any part of the Property or any Interest in the Property is sold or transferred

You're right. Sales is learned and it's necessary for success.