BiggerPockets

Hi Sam---

There are lots of other threads on Subject 2's. In the search bar(above right), type in: subject 2's or sub2's or subject to's

I hope that helps!!

Hello Kathy and Federico
Thank you for your reply.I have the setup (l.trust &llc) etc. figured out. The issue is that there is a realtor involved in the deal and if I pay the commission and what the seller wants it comes to a handsome sum which will take me almost 3 years to get my cash back.
The loan is a fixed loan/30 years so I am good. But if I put too much money and the bank does call it due I would be the one scrambling after putting money.
I am trying to see if I can work out some other type of deal , pmts every month instead of any chunks upfront to minimize my risk. So was wondering what the chances of the bankc alling the loan due in this market?
Thanks
Sam

I personally know only one investor who ever had an issue with a sub-2 deal (and he's done lots of 'em). I don't remember the exact details, but there was some mix up regarding the monthly payment. I believe the payment was similar to, but slightly more than another property he was taking over. So he was sending in a payment that was short of the full amount. After a few months, the bank called the previous owner and asked why he was falling behind. As you could guess, he got extremely upset at the buyer (the investor I know) and spilled the beans to the bank.

The bank then called the investor and asked if HE was the new owner, of which he replied , "Uh, yes" (meanwhile he's saying "Oh shoot" a hundred times to himself). The bank then said he was behind about $350 dollars and asked whether or not he could pay it? His answer was, "Yeah, I can mail a check today. Is that all you need?". The bank said "Yes" and that was the last time he heard from them.

Okay this is very simple.Buyers want to take over a property with no money down.

A seller might look at a WRAP but wants to know that they buyer will stand a lot to loose and will fight hard to keep the property performing which is why they want money down.

If the buyer puts nothing down then the seller could incur massive costs trying to foreclose depending on the state the property is located.

Also remember no money down does not mean you will be without costs.

I did a no money down deal on a 20 unit but I am having to spend some of the cash flow on deferred maintenance on the property.

So you will have the initial closing on the purchase and then ongoing costs between now and in the future at risk IF a bank calls the underlying note due.

Having said that banks are drowning with non-performing assets.They have zero motivation to create more loan problems on the books then they already have.Now in a few years when interest rates start to rise and banks have healthier books they might start really looking at calling loans due to re-lend at higher rates.

So the key with a WRAP is the exit is just as important or more so than the purchase.Your possible exits might change over time so I am looking at how my purchases progress and are performing and then think each month about what the exit might be and do I need to change course.

Thanks everyone for your reply/feedback. My deal involves taking something subject to and having to come out of pocket for about 25 k with realtor commission and to owner etc. my cash on cash is about 30% and it will take me 3 years to get my initial investment back.
If I put in just 4 k it wouldn't concern me this much. but since it is more I am not sure if I want to take that risk or not.
I am comfortable doing sub2 with just a few thousands down and so wanted to findout how much you all are putting down on these sub 2 deals.

Pls. let me know your thoughts.

Just wanted to say I really like this forum! Everyone is so helpful and replies quickly and knows what theyre talking about. Most everyone... Ron Legrand is an excellent teacher. I agree that as long as someone is making payments the bank doesn't care who is making them. As long as you don't assume the note your not legally responsible to pay it. Along with the landtrusts, I believe the bank can not call the loan due if the seller put it in a trust for "estate planning purposes". That why its suggested to call it the "sellers last name" family trust.

I took a property sub 2 earlier this year that I flipped. Wells Fargo was the lender and they actually did call the loan due even though it was performing! This was the first time I have ever heard of a bank actually calling the loan. Fortunately I was out of the property in 6 months anyway so the bank didn't get a chance to start the foreclosure on my PeRFORMING LOAN. I've probably done about 15 sub 2 deal and this was the only one that I ever received a letter from the lender calling the loan. I did catch up about 15k in arrearage the day I closed, that might have tipped them off, but still, PERFORMING LOAN. I've been investing 9 years and I still don't understand banks.

Can anyone post an example of a sub 2 contract in the FileSpace? I'd love to see one. And yes, I know that there are other CYA docs that need to be used when doing sub 2's, or any other deal, I'd just like to get a sense for what type of language is included?

@Mitch- I think I know the guy you mentioned in your story.
I do quite a few sub 2 deals with realtors involved and tell them up front that they need to take a smaller flat fee or monthly payments. This eliminates the uncomfortable conversation later.
I limit my upfront costs to closing costs. Anything the seller wants becomes "back end" stuff or prepaid mortgage payments through escrow.

"I do quite a few sub 2 deals with realtors involved and tell them up front that they need to take a smaller flat fee or monthly payments."

Do they go for this?? It's not really the agents choice on whether they can accept the proposition it's the head brokers unless they are with a flat fee company where the amount paid initially would cover their fee to the broker.

I just think to TRUST that an investor is going to pay you the commission after a deal is done and has the property is very high risk.Anything goes wrong and you will be the first one getting the shaft and chasing the money wasting time and energy.

If I was the broker or agent I would try to line up as many investor buyers doing sub 2 and not accept such a position.

As always parties with different interests will align themselves different ways.

It's almost similar in commercial real estate leasing in that as a broker you want to try to extract as much commission upfront.The longer your payments are spread out in the lease the more chance of the business going under especially a mom and pop operation.

If I had the investor buying hat on I would probably try a similar strategy.

This is why investors like off market deals because they can isolate the seller and extract the best price and terms.When many buyers are competing for the same deal the pool of competing buyers lose leverage to the seller.