Subject To: Flip Deal

[Jonathan Makovsky]

What risks will we be contending with on a "Subject To" flip deal that we are acquiring? 

We understand the bank can call the Due on Sale Clause, in which case we expect to have 30 (90?) days to pay the note off, is that correct? The Sellers understands that their names will still be on the mortgage. 

What other risks/concerns should we and the Seller be aware of? 

Thanks in advance.

[Brian Gibbons]

@Bill Gulley

Buying and subject to and quickly refinancing is probably the way to go and I like subject to and then resell on lease to own with a very strong tenant buyer and work very hard to get the tenant buyer financed within six months or so

The risk of the sellers is that the loan can be called due but if there's a plan in place for resale quickly generally the lender will allow you to do your plan  if you can provide paperwork to that effect

What not to do with the sub to is to wrap it, and on sell it with owner financing,  once you own it via sub to, bad  idea

[Jonathan Makovsky]

Thanks so much @Brian Gibbons.

Just so I understand correctly, can you confirm if this is correct:

- Option 1) Purchase subject-to, then re-fi out. [Good option.]

- Option 2) Purchase subject-to, then fix-and-flip it asap. [Good option.]

- Option 3) Purchase subject-to, then sell it with existing financing in place to new buyer. [NOT a good option.]

[Brian Gibbons]

Pretty good there @Jonathan Makovsky

Don't be afraid of communicating with the bank and using your own attorney for this communication because when you buy it subject to, you have a due on sale clause that could be called due, not that it's going to be called due.

It wouldn't hurt for you to be licensed in the state of Conn but act as a business principal and not "acting agent for"

[Bill Gulley]

Better is buy it sub-2 and rent it. Then you can sell it if the bank calls it, if you lease-option it, you will have a harder time exiting from that contract. Rent for a few months, a year, see how things go. You need to 1. be able to payoff the loan or 2. sell it if you fail at a refi./payoff. Finding buyers that can buy in 6 months can be tuff in reality, but there can be a few out there. :)

[Jonathan Makovsky]

Originally posted by @Brian Gibbons:

It wouldn't hurt for you to be licensed in the state of Conn but act as a business principal and not "acting agent for"

 Thanks again Brian. I am licensed - although I'm not sure I followed what advantages that gives me in this situation different than someone who is not licensed. Can you clarify? 

Thanks.

[Jonathan Makovsky]

Originally posted by @Bill Gulley:

Better is buy it sub-2 and rent it. Then you can sell it if the bank calls it, if you lease-option it, you will have a harder time exiting from that contract. Rent for a few months, a year, see how things go. You need to 1. be able to payoff the loan or 2. sell it if you fail at a refi./payoff. Finding buyers that can buy in 6 months can be tuff in reality, but there can be a few out there. :)

Thanks so much Bill. This particular deal isn't best suited from a return standpoint as a rental (it would be fine as a possible exit strategy, but not best case). Our best case here is fix-and-flip or wholetail.

[Steve Swanson]

@Jonathan Makovsky What did you end up doing on this deal, & how did it turn out?  I'm looking at a similar deal for a nicer house in Kansas city that needs a remodel completed (approx. $20k), & then it would be ready for sale.  There is approx. $40k in equity after the remodel, but it wouldn't be a good rental, so I wanted to buy sub-to, finish the repairs, and sell retail to the end homeowner.

[Jonathan Makovsky]

@Steve Swanson the seller's attorney advised the client not to move forward as a subject-to deal, so we didn't buy it. 

However, we should have purchased it for cash and whole-tailed it. The property sold "as is" for about 25% more than what we were going to purchase it for - at least I'm happy for the seller. 

[Maria Dungo]

Quote from @Jonathan Makovsky:

Thanks so much @Brian Gibbons.

Just so I understand correctly, can you confirm if this is correct:

- Option 1) Purchase subject-to, then re-fi out. [Good option.]

- Option 2) Purchase subject-to, then fix-and-flip it asap. [Good option.]

- Option 3) Purchase subject-to, then sell it with existing financing in place to new buyer. [NOT a good option.] 

Are you gonna add value when you refi?

Or can you get a refi even if the house is as-is?