First time Inverstor buying Subject-To

Hello Everyone!

I plan on buying a house "Subject-To" in Coppell, TX

GIVEN:
1. Loan Balance $162K
2.I nterest Rate: 7.5% (Flat 30 Year Term)
3. ARV, CMA Report $165K-190K
4. Built 1979
5.$1707/Month Payment (includes PITI + PMI) (money in Escrow)
6. Neighboring area houses for Lease ($1200-1500 a month)
7. Needs about $10K
a. Paint
b. Carpet
c. Some Electrical
d. Foundation
8. Behind 2 months' rent (about $3,500 needed to get loan up to date)

Reasons why I would consider this deal
1 First investment deal
2. Want to learn
3. Be able to get the $8K tax credit (first time home buyer)
4. Get additional tax cut because of being in a higher tax bracket, due to my business

Reasons why I Don't want to do this deal
1. Monthly payment to the lender is higher than the market value
2. About 3% equity in the house after repairs

Exit strategy will be to offer owner financing and to do a wrap-around loan

Not planning to make a lot of money on this transaction, wanting to get my feet wet and learn

Please provide any advice that you may have.

Thanks for your time.

Edwin D
[LINKS, PHONE, AND AD REMOVED]

Edited: 06/26/2010 at 09:33AM by Moderator : Contact info must be in signature and will appear after 10 posts.

Jon Holdman

Real Estate Investor · Denver, Colorado

11859 posts
75547 Influence
15 Awards

Icon_minipost Aug 30 '09, 12:50 PM

What's the upside here? I'm not seeing it.

You're going to buy for $162K and it needs $10K in work. ARV is $165-190K. That's a huge range for the ARV. You list your occupation as an agent, so you should be able to get it much closer than that.

Given a range, I'll always use the worst number. So, you're going to be into this for $172 (plus costs) and its worth $165K. And you're stuck with a 7.5% loan, which is high even for an investor loan, and very high for an OO loan.

Even if its worth $190K, you're into it at 91% of ARV. Sorry, that's an awful deal.

For a flip, and using $165K as the ARV, this is worth $105K. That's 70% of $165K ($115.5K) less the repairs.

As a rental, its truly awful. Read in the Rental property forum about the "50% rule". If it leases for $1200 (again, a huge range, way to large to use for your calculations), you'll have $600 NOI. The P&I payment is $1150 for a new, 30 year, 7.5% loan. Might be a bit higher if this has been paid down for a while. So, you're losing at least $550 a month as a rental.

Put the pen down and step away from the contract. From what others here have posted, you can do much, much better in Dallas.

Now, if you're buying this for your primary residence, and just love it, go for it. But don't fool yourself into thinking this has any investment potential.

Edited: 06/26/2010 at 09:33AM by Jon Holdman

Jon Holdman, Flying Phoenix LLC

Nick J.

SFR Investor · Scottsdale, Arizona

2806 posts
27916 Influence
21 Awards

Icon_minipost Aug 30 '09, 01:35 PM

what is it that they tell Forrest Gump to do?

oh, that's right, Run Forrest! Run!

I'm not going to go into all the things that you could do to improve this deal if it's your first one. I wouldn't touch anything like that for your first Sub2 deal.

Just because someone is willing to sell Sub2 doesn't mean you want to buy Sub2. This deal is exactly what that would refer to.

Edited: 06/26/2010 at 09:33AM