How can I make this a true Subject 2

Question

Ok so here is the deal I am working on.  5.75 % interest rate on an apartment complex that is currently 90% occupied and has a great manager and maintenance staff.  He wants me to put down $300,000 and take over his payments. Property is now grossing over $40,000 a month and the payment is just less then 20,000.

The balance is around 1.9 million. and the loan is assumable

To my understanding a TRUE subject two does not require ME to put any money down, but actually he could pay me or simply walk away from the loan correct.  How should I approach him about this?  I am still doing my research on the property but I would like to take it over only if no cash is needed from me.

Nick J. · Answer

was his name Fadie?......... :mrgreen:

Thats a bummer. That happens so much when your dealing with other investors that are trying to sell their non-performing assets. At least your smart enough to realize it was a bad deal.
Keep on keepin on, I'm sure you'll knock one out of the park soon!

Natalie Wade · Answer

Hey Guys, sorry for my delay.  I have been on the run alot etc.  Anyway I did speak to the owner, and the after going over the expenses it seems that there is no cash flow at all, though he was trying to tell me other wise, and kept saying things were picking up etc.

So, that def was a no go, thanks for all your help :)

Will Barnard · Answer

. . . . updates ? . . . . .

Nick J. · Answer

any updates Natalie?

Natalie Wade · Answer

Good Point, I am looking into the operating expenses now to see what the numbers are.

Jon Holdman · Answer

If they're under 50%, somethings being neglected, understated or overlooked.  Use 50% as the lower bound and look out for anything that's making them higher than that.

Will Barnard · Answer

Like Nick said, paying cash for equity in a sub2 is fine so long as the property is worth taking over and in this case, judging from the bit of numbers you posted, it is not even with no money down.

Nick J. · Answer

it is acceptable to pay cash for a portion of the equity in a Sub2 deal.

My only 2 questions are:
is balanced at 1.9, but what is it worth?

do you have or have access to 300k if in fact there is plenty of equity to justify the 300k

Also I wouldn't pay him any money down if your intentions are to assume the loan.

Will Barnard · Answer

First off, you need to calculate the financials first to make sure it is a good deal to take. If the debt service is already 1/2 of the gross income, you can expect the OE is also 50% of the gross and therefore offers no cash flow. Since the investment is already at 90% occupancy, you have very little upside room. Not sure you should take it even with $0 down and take over payments.