Hi All. So while I wait for my first direct mail campaign to hit their recipients, I decided to get some "phone" practice in and call a few FSBO listings for potential leads and get the hang of speaking about properties over the phone.
So this one I contacted today is very motivated; Her work commute is very far and the house is a lot bigger than what she needs and it's tough for her to maintain, so she wants out. The problem is, she owes on her mortgage pretty much what the comps are coming in for. She may even be a bit underwater.
I'm a rookie wholesaler here in Miami, FL so the easier deals for me at this point are those with some equity (meat on the bones). But before I move on to the next lead or pass these on, I'd like the input of those more experienced becasue if I can actaully help her somehow, someway, i think i'd be off to a good start both from a customer satisfaction standpoint as well as educational... Would seller financing be an option? Thoughts?
I think she is better off doing subject to current financing if she is close or a little under water. There are some folks out there with low or bad credits for whatever reasons that can not qualify for a loan. They are more willing to put some money down and take better care of the house than a tenant would. The new owners would be responsible for all maintenance, insurance, etc. If they stop paying she can take the house back. You will not make any money, but at least you can show her an option to get out. Search the forum for lease to own or subject to if you need more clarification.
Agreed. Subject to is probably your best option. However, you don't necessarily have to flip it to another buyer. Depending on what the payments are on it and what rent it will support, you might be able to do a subject to and hold it a while, if it will cash flow. You could either use the cash flow to pay down the mortgage and refi, once you've built some equity, or you can cash flow it for a couple of years and then sell. Multiple options, but you need to know what the payments and what the rental comps are.
This brings up another question...is the "subject to" used interchangeably here in the forums with the contract for deed (aka agreement for sales or land contract) as a form of seller financing? I understand there's a slight difference, not exactly sure yet what that is though.
Just read up on exactly what the difference is....it's all in the timing of title transfer. Subject-To's transfer right away to the buyer while the contract for deed deal transfers title when the note is paid off.
I'm still wondering if "subject-to" is used for both cases for simplicity reasons???
I think if the terms are being used interchangeably any where it's because there is a lack of understanding as to the difference. They are not the same thing for the reason you explained. In a subject 2 deal, I immediately become the owner of the property. I am not leasing the property or holding a right of first refusal option. I hold title to the property.
In a sub2, the owner signs over the deed, subject to the existing loan. In a land contract, not preferable for a buyer, title stays in the seller name until you pay off the loan.
Thanks for confirming @Hattie Dizmond
So as far as the actual deal goes, the wife REALLY wants out but the husband does not want to sell yet. Their mortgage payment is $930 on a 2% fixed while the average rent in the area is $1300. So this one is definitely going into my follow-up list. Hopefully I'll come back to this thread with good news.
Yeah...keep an eye on that one for sure and let us know how it goes.
@Wayne Brooks I guess it depends on the relationship we have with the parties involved. I can see how the contract for deed can make it easier on the seller (customer service) in the case that the buyer defaults. But like you said, a buyer would prefer to take over the title.
One last note...correct me if I'm wrong but due to Dodd Frank, double closings should be avoided with both of these, they should be assigned, correct?
Dodd Frank deals largely with offering financing to an owner occupant, them being qualified, having the ability to repay, etc. It doesn't affect assigning verses double closing. You say they have their loan at 2%, which means they have received a modification. That rate will increase at some point. And make sure you know what the real balance is. In a modification they take maybe 1/3 of the balance, put it on the side, use the remaining 2/3 at 2%, 30-40 year amortization, to come up with the greatly reduced payment. But, that 1/3 doesn't go away, it's still owed at the end, and within a few years the 2% starts going back up to about 5%.
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