BiggerPockets

Gabriel,

First off, Welcome to BP! This is the best place to learn!

As for Sub-2, talk to Nick J. (Motiv8td) on here. He knows lots about Sub-2's, and he is willing to explain.

Have fun and good luck.

Originally posted by Gabriel A.

1.) How do you approach a seller about subject-to financing?

If you are approaching random sellers about subject-to purchases you are going to be wasting a lot of time. The key is having a marketing system set up to get people calling YOU. At that point you can sort, screen, etc. over the phone and stand a lot better chance of getting sub-to deals done.

A standard equity presentation is generally done where the seller is shown they will benefit financially by selling subject-to. If you can show people that they will benefit you chances of success go way up. If you set your systems up the right way you will be doing people a favor by taking the home off their hands instead of begging.

Originally posted by Gabriel A.

2.) How often do lenders call the loans if it has a "due on sale" provision? Has anyone here ever had that happen in a subject-to deal?

In the current interest rate environment...rarely. HOWEVER, that does not mean that interest rates won't rise with inflation coming. Heightened rates will greatly increase the likelihood of lenders calling notes. When you take a property subject-to you are turning a previously uncallable note into a callable note no matter how you structure the deal. You need to account for this risk and be prepared to deal with things if the market changes.

I think subject-to purchases should generally be used as short-term financing vehicles UNLESS the lender is informed of the sale and blesses it. If you don't operate like this then there is some chance that ALL of your notes could be called all at once in the future when it is beneficial for lenders/servicers to do so or when the media runs a story about "evil investors." Servicers generally get paid via yield spread so it is unclear whether or not they would do what is in the fiduciary interest of their bondholders in the event that rates rise. Just know that this CAN happen and account for that risk appropriately.

You also have the "crazy seller" risk where they hire an attorney to sue you for something that 99% of attorneys don't understand. Even if you are right you still will have to pay to defend yourself, which often isn't worth it. Informing the lender so that the debt doesn't nick the seller's DTI ratio for a subsequent purchase helps here too.