All Forum Posts by: Wes Martinez

Hello all,
I bought a fix/flip back in December and it has been a bit of a mess since the get-go and I'm now looking to sell it. My current realtor hasn't been great, starting with the home pricing... way overpriced but they swore she could sell it for that or close to it... 3 months later we've adjusted down to what I suggested. Aside from that there's just no real initiative to help. I think they might be stuck in the covid ways where it should sell itself.

At this point I'm losing money on the property, but I just want to stop thinking about it and offload it. If you're a REA in the KCMO area I'd love to chat about helping sell this property, or at the very least pick your brain on best strategies to move past this. Please DM me and I can give you more details.

Thank you all so much in advance!

Quote from @Justin Sutton:

Quote from @Wes Martinez:

Hello fellow BPs,

I'm currently in the process of doing an off-market deal with someone who prefers a type of seller financing in order to save money on closing costs, but they currently have a mortgage on the property.

Here's the deal:

- Asking: 240k

- Current mortgage balance: ~100k

- Rehab needs: 40k

- Value after reno: ~350k (I own the house next door and it was appraised at that after renos)

The plan is to back into an easy refinance in 12 months, all while doing our best to avoid "Due On Sale" clause. I think I've read just about every post on here on DOS, so I'm very well aware that it is a real risk and basically impossible to fully eliminate, but not likely to be called on if payments are made on time and hazard insurance is changed carefully.

I also realize there are more risks than DOS... I.E. seller declares bankruptcy, etc.

I guess my question is... what is the difference between sub2 and wrap-around and which would back me into a refinance the easiest? I've also researched land contracts/contract for deed, but that seems way more riskier for me (the buyer) right? And also haven't found information on these threads on whether a traditional lender would recognize a contract for deed as true ownership and allow me to refinance.

This investor has 8 other properties and I get the feeling their spouse passed or something unfortunate happened (the investor is in their 60s and all their properties have what I assume is their spouse's name on them too) and now they're just slowly off-loading them instead of dumping rehab money into them. I'd love to nail this deal to gain their trust and hopefully have me be their first choice before putting their other properties on the market!! Thank you so much in advance for your advice!

 Hi @Wes Martinez

First off, congrats on finding what sounds like a great deal.

Here is what I would do:
- Take the 100k loan sub2

- Offer the seller half of their cash to close now and the other half in 12 months/sale of property
- Raise the money to cover the all cash to close, holding costs and repairs. 
- Close, renovate, list and sell. Disburse remaining 50% to seller, payoff loan take sub2, etc fees etc. 

Split profits or payback lender an agreed upon return on whatever money they lent to you.

Ideally you are using the underlying debt as a HML and bringing your own cash (using other peoples money) to take it to the finish line.

Hey Justin, thanks so much for this input… it’s an amazing option! Ideally though I’d like to keep the property to turn into a medium to short term rental. The house is 3 minutes away from downtown Phoenix and within 10 minutes to 6 hospitals. My current investment property next to this one does really well on Airbnb. But I do like the option of flipping it for f need be! Thanks again!

Quote from @Eliott Elias:

A subto is merely you taking over payments of the current loan, nothing more nothing less. A wrap is a loan with a purchase price and terms (interest rate/down payment/balloon) different from the current loan, that loan is paid with the original loan still in place, not paid off. You can refinance both, the property will be deeded in your name in both scenarios. 

Nice! Thank you for your comment. Similar to what I asked someone here… do you know if traditional lenders frown upon these or turn them down for whatever reason? Trying to stay in good standing with my current lender but we’re fairly early in our relationship.

Quote from @Jay Hinrichs:

If your sure U can refi in one years time.. then don't worry about the loan being called.. by the time any NOD and then foreclosure would happen takes at least a year or more.. takes them some time to figure out the title has transferred then they write a few letters ( the lender does) then they threaten then they have to do the mandatory 90 day notice .. then they can file the NOD and depending on state that takes at least 4 months or more. etc etc by the time that all happens you have refinanced.. Now from the sellers position SUB TOO is stupid way to risky for a seller . Sellers should only do Wraps as @Account Closed Noted if you default they have a clear path to get the property back.. the risk in these deals is all Sellers.. Buyers have no risk.. if buyers default its their own problem and deserve to lose their down-payment. 

@Jay Hinrichs thanks for this… I kind of figured the same thing. I already qualify under a conventional loan so I could purchase it if need be, but the closing costs and leveraging that for a lower purchase price is really appealing to me! This house is 100sqf bigger than mine so I could see it being closer to 360-370k ballpark but trying to be conservative.

as a broker/pro opinion… are wraps frowned upon by lenders? I’m starting to build a relationship with a really good lender, but don’t want to change his perception of me as an investor. This may be a very naive question, buuuut I’m Ned to this seller finance/creative finance thing. Thanks!

Quote from @Account Closed:

Quote from @Wes Martinez:

Hello fellow BPs,

I'm currently in the process of doing an off-market deal with someone who prefers a type of seller financing in order to save money on closing costs, but they currently have a mortgage on the property.

Here's the deal:

- Asking: 240k

- Current mortgage balance: ~100k

- Rehab needs: 40k

- Value after reno: ~350k (I own the house next door and it was appraised at that after renos)

Talk to a mortgage broker and ask them if they prefer a Wrap to refinance or a Subject To to refinance and at what LTV & seasoning before assuming 12 months will be enough time.

1) A Wrap is where you have an attorney write a new loan to the seller for eactly the same terms and conditons he has with the lender. Just make sure you do a title report and close through escrow. You pay the seller the monthly payment. They continue making the payment to their lender. The bank can foreclose on them if the seller stops making payments. AND The seller also can foreclose on you if you start missing payments to him. 

2) A Subject To means you start making the payment to his lender and you skip having an attorney write a new loan with the seller. Just make sure you do a title report and close through escrow. The seller has no recourse with a Subject To and the seller can NOT foreclose on you, if you start missing payments, but the bank can still foreclose on him if payments are missed.

He is in violation of the Due on Sale Clause either way, but it is rare, but not impossible, to have the note called. 

Here's a post I did on Subject To that may help

Using Subject To, to Get "Free" Properties

https://www.biggerpockets.com/forums/311/topics/1060320-using-subject-to-to-get-free-properties-a-quick-guideline

@Account Closed thanks so much for the insight, this helps a lot! I’ve read your article (last night) and was very helpful! Based on your experience, are low down payments typical for wraps? How do you sell a low dp? Seems like it would be by letting them know it’s risky for me as well? 

Thanks in advance! 

Hello fellow BPs,

I'm currently in the process of doing an off-market deal with someone who prefers a type of seller financing in order to save money on closing costs, but they currently have a mortgage on the property.

Here's the deal:

- Asking: 240k

- Current mortgage balance: ~100k

- Rehab needs: 40k

- Value after reno: ~350k (I own the house next door and it was appraised at that after renos)

The plan is to back into an easy refinance in 12 months, all while doing our best to avoid "Due On Sale" clause. I think I've read just about every post on here on DOS, so I'm very well aware that it is a real risk and basically impossible to fully eliminate, but not likely to be called on if payments are made on time and hazard insurance is changed carefully.

I also realize there are more risks than DOS... I.E. seller declares bankruptcy, etc.

I guess my question is... what is the difference between sub2 and wrap-around and which would back me into a refinance the easiest? I've also researched land contracts/contract for deed, but that seems way more riskier for me (the buyer) right? And also haven't found information on these threads on whether a traditional lender would recognize a contract for deed as true ownership and allow me to refinance.

This investor has 8 other properties and I get the feeling their spouse passed or something unfortunate happened (the investor is in their 60s and all their properties have what I assume is their spouse's name on them too) and now they're just slowly off-loading them instead of dumping rehab money into them. I'd love to nail this deal to gain their trust and hopefully have me be their first choice before putting their other properties on the market!! Thank you so much in advance for your advice!

@Noah Chappell thanks so much for the feedback. I really appreciate it! PMs are proving to be the hardest to get in touch with, but I'll stay persistent...

Hello! After years of sitting on the sidelines, I have made the decision to finally start my Real Estate career! My #1 goal in the short term is cash flow. Appreciation would be amazing and wouldn't say no to it, but I'd rather higher cash flow over appreciation (at least for my first deal or two). After reading a million posts it seems like the midwest and Tennessee are the best options for multi-unit rentals when it comes to cash flow!

A little about me: I have been in CPG sales/marketing for 16 years. I'm 100% debt free. Credit of 700-750. Have about 40k in savings/stock ready to invest.

I'm based in AZ/CA, so my first deal would be long distance... Enter BP investors' wealth of knowledge! Here are my questions:

1) What are the best (most approachable) cities/areas/state for a newbie like me? I realize I'd have to build a team for my first deal, so I'd like to take full advantage of that and eventually buy another 3-4 properties in that area/city/state before moving on to another market.

2) Would you recommend rural, suburb, or city for my first deal? Or first several? I feel like city would be easier to find PM, handymen, etc, but not sure if there is something I don't know about the rural/suburb markets...?

3) Is it better to buy two properties in the low-mid 100s or one property in the 300s? On paper two seems like better than one, but again, newbie here so hoping to avoid any landmines if I can help it!

Thank you all in advance, I'm so excited to have found this community!