When NOT To Buy A Property Subject-To

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Sometimes, buying a property sub2 isn't the wisest decision you can make. In this live, I'm going to let you know when it's NOT ok to buy a property subject-to.

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When any one of the following three criteria are not met when we’re evaluating our deals.

⚆ When up front costs (cash to seller, closing costs, arrearages, etc.) put you into negative equity that you cannot break even within 12 months time.
- Eg. You buy a house that’s worth 200k (FMV)
- We work off of FMV when we buy, ARV when we sell.
- Seller owes $180k
- In arrears $25k (you’re negative $5k)
- Can you net enough cashflow to break even at 12-months?
- If you seller finance this property, it may be possible to break even and maybe even profit from the sale up front.
- We like to be no more than 90% LTV on any of our deals
- We can get to 90% LTV if…
- The deal itself will support it (costs to acquire fall within that 90% LTV)
Or
- We can seller finance that deal and earn enough of a down payment to “buy” our equity back

⚆ Cash flow
- Our monthly cashflow must meet our minimums.
- Set a minimum for yourself (ours is $350 / month / unit)
- Doesn’t matter if it’s a rental or if we’re seller-financing our buyer.

⚆ Backend profit (profit when we sell or our buyer refinances)
- For us, as long as we are 100% positive that we will not have to come to the closing table with cash, we’re good.
- We would like to make as much on the back-end sale/refi as possible.
- We’re all about CASH FLOW.
- When you’re dealing with a potentially litigious or pain in the ass seller.
- This is why we don’t “close” sub2 sellers.
- No sleezy sales pitches.
- No begging.
- No talking them into it.
- No asking them to “try it out”
- You are going into business with your seller.
- You’re going to be dealing with this seller for a long time, IF you’ve done your job right and get a long-term commitment on the terms of your deal.
- We don’t like to make promises to our sellers on when their property will be paid off.
- We want to utilize that low interest loan for as long as we possibly can.
- The last thing on earth that you want is a “jaded” seller.

⚆ For the most part, you want to stay away from adjustable rate mortgages.
- ARMs, have a “lifetime adjustment cap”.
- It's the “ceiling” for how much the lender can raise the rate
- When you are evaluating your deal, you want to be super conservative
- Run your cashflow numbers at whatever that cap percentage is.
- So if the cap is 8%, run all of your numbers at 8%

⚆ If you are expecting to pull equity using a HELOC or a second mortgage from an institutional lender.
- Institutional lenders do not like to lend on properties where you’re name isn’t on the original mortgage.
- If you find one, don’t ever lose their number.
- There are other ways to do accomplish pulling equity out of your subject-to deals.
- Line of credit.
- Let’s say that you are applying for a line of credit (Not a home-equity line of credit, but just a regular old personal or business line of credit.)
- What is the 1st thing a lender is going to ask for when applying for a LOC? A personal financial statement listing all of your assets and liabilities.
- Assets will include the houses you’ve bought subject-to.
- Your liability’s column, you list all of YOUR loans that you have on your properties.
- Do you list the loans that aren’t in your name? Are those loans YOUR liability? The answer is NO.
- If you stopped making payments, is that reflected on your credit profile?
- I absolutely would not recommend to stop making payments on the loans that you’ve taken subject-to. It can get you into a lot of legal trouble that you don’t want. I am simply trying to show you another method for pulling equity out of a subject-to deal. THAT’S ALL!

- A couple of other ways you can do this (ways that we recommend)
- Private lenders
- A fantastic source for long-term lending
- Target self-directed 401ks
- Equity partners
- Similar to private lending but you’re giving your lender and equity position
- Percentage of ownership
- Percentage of cash flow
- Percentage of net profits upon the sale
- One of our promises to our equity partners is that once they buy into our deals, they never have to put any more money into that deal. If we lose a tenant or a buyer, they may not see a check for the time the property is vacant, but we will never ask them to put more capital into the deal.

"Just because you can do a subject-to deal doesn't mean you should!)

Видео When NOT To Buy A Property Subject-To канала Sub2Empire