Subject to deals!!!!

38 Replies

Good Morning Bigger Pockets Family!

I have interests in a property that I need some guidance from you on.  You helping me will allow you to help someone out today across the US without even leaving your computer which giving you warm feeling in your heart for sharing your knowledge!

Now down to the facts!

Wanting to do a "subject to"deal with this one; (property needs about $ 5,000 in repairs and HVAC unit)

ARV: 72,000

Mortgage: 66,000

Mortgage payment: 550

Rents for 750

_____________________________________________________

Option 1 to the owners:

$2,000 down with me getting new HVAC unit and $5000 rehab. collecting 50$ per month from owners for property management before paying the 550 mortgage. 

Option 2 to the owners: 

$1,000 down with the owners getting new HVAC unit and I'll still do the $5000 rehab. collecting 50$ per month from owners for property management before paying the 550 mortgage.

Does these two options seem reasonable and make sense? This is what I have put together.

 I've reached out to many investors and I  seem to get the "beat around the bush" answer or not a straight forward answer.

Also would it be smart to do a with a lease option with the new renters getting $5,000 down and collecting rents? 

or would I do a 5 year contract with the home owner, place tenants in the property with the option to sell the property after 5 years?

I would love some guidance on how to structure this deal! Look forward to hearing from the Solid Minds Out there!!1

@Joshua Lowery The mortgage balance is too high and the payments are much too high for you to make anything by staying in the middle.

The only suggestion I can make is to write up a sub2 purchase for the mortgage balance and advertise it with an ad like this:

"TAKE OVER MY PAYMENTS! $3000 assignment sale on a 3/1 in Akron. Needs handyman's touch but you can OWN this home for less than rent!"

Assign it to a contractor who can do the work for a fraction of what you can. And if you're feeling generous you can split the assignment fee with the seller.

@Joshua Lowery You still have to pay taxes and insurance, and put money aside for vacancies and maintenance. So if you're lucky you'll be closer to $100/month net with only your $5k of repair money as equity. Normally $1200/year on a $5k investment would be pretty good, but not when you have a $66k loan hanging over your head to get it.

By the way, $550/month on a $66k loan is just shy of 9.5% interest! Current 30-year rates are around 4.6%, you should be looking for sub2s that are close to that.

Basically, you don't want to get yourself into a deal where the planets have to align perfectly for you to make any money. You need some cushion.

@Doug Pretorius   one has to be very careful in OHIO .. you cant advertise the house in any way.. 

its the one state that really cracks down on unlicensed activity.

but this deal has not nearly enough equity .. I only do sub toos if I have at least 30 to 35% equity  why buy any house without equity that is a fixer.

Originally posted by @Doug Pretorius :

@Jay Hinrichs LOL I just gave you one. "$3000 assignment sale". Or you could write it like this:

"(property description) ... I'm selling my contract to purchase the above described property for $3000."

there are some long threads were the regulator from OHIO actually posted on BP and that is fine but you cant put the address in the add or description of the house.. so what I am saying is yes you can write one.. but no ONE does it that way.. they all put an address and a description which in OHIO violates the laws and they do enforce them  Just like Oregon is starting to and FLA.. 

I would love to do what you guys get to do with your condos up there .. and maybe I will take a peek..

I did some work in BC and I bought some stuff in Ft McMurray in the day.. problem is REV CAN takes 25% of my gross proceeds until I file a CA income tax return.. it was better to be a lender.. I would do HML in BC and get a loan pay off no with holding of my profits.. and I made a nice play on the currency delta.. Or arbitrage as it were.. I LOVE BC

@Doug Pretorius   PS even though I  am a broker I have not done retail real estate in 15 years LOL.. 

I will make some referrals occasionally and get a nice referral fee like if someone wants to buy a nice home in the Napa valley were I used to live I refer them to broker friend of mine or I have made some referrals to the brokers who work for me in Charleston.. and referral fees are nice these are high dollar and tend to be 10k plus for just  sending a name.

@Jay Hinrichs I wonder how these things came to pass in a so-called free country. I can see it happening in maybe 1 or 2 states. But EVERY state? Is the NAR lobbying every state to word the legislation this way or what? I'm surprised they haven't yet made it illegal to sell your own property without hiring an agent, I guess that will happen soon enough.

OK here are some ideas for you poor souls living under fascist totalitarianism: 

You can have the owner advertise the property for you.

OR you post an ad with a photo of the contract.

OR you could run a generic ad for "Wholesale real estate deals" and read the contract (including the description) to them over the phone or in person.

OR you could hire an agent to list your deals for you, so long as you have written permission from the owner to do so.

OR you could just give up and get licensed.

Originally posted by @Doug Pretorius :

@Jay Hinrichs I wonder how these things came to pass in a so-called free country. I can see it happening in maybe 1 or 2 states. But EVERY state? Is the NAR lobbying every state to word the legislation this way or what? I'm surprised they haven't yet made it illegal to sell your own property without hiring an agent, I guess that will happen soon enough.

OK here are some ideas for you poor souls living under fascist totalitarianism: 

You can have the owner advertise the property for you.

OR you post an ad with a photo of the contract.

OR you could run a generic ad for "Wholesale real estate deals" and read the contract (including the description) to them over the phone or in person.

OR you could hire an agent to list your deals for you, so long as you have written permission from the owner to do so.

OR you could just give up and get licensed.

YOU know frankly NAR is not really on this.. what happens is private sellers who get screwed are the ones who complain..

most frequently its when wholesaler ties it up lies to the seller saying they are cash buyers when they are not.. seller relies on this goes out and puts deposit on a new home  get approved for financing spends that money box's their house up and the wholesaler says sorry cant close keep my 50 dollar EM.. 

I mean I just got a contract in ST Louis on a property of mine from a wholesaler with a whopping 25.00 EM tie It up for 60 days and no POF.. told the guy to go F himself basically what is this amateur hour . But people fall for it..

So what happens is when you have real damage that a private citizen endures they are the ones filing the complaints I have never seen a bulliten or anything from any of the 3 states I am licensed in about turning in wholesalers or anything like that..  

@Doug Pretorius   Although come to think of it when I renewed my California license last year there was a tab on the DRE website that said if you suspect someone of illegal activities  IE selling without a license click here.  you can pop on their site and see if you can see that tab as well.

Frankly there Is just too much money in teaching wholesaling and unless the regulators stop the gurus this will never end Gurus by and large could care less about the laws they just want to sell mentoring and coaching.

I get both of your point of views @Doug Pretorius and @Jay Hinrichs

The reason why the mortgage is so high is because the home owners took out a loan against the mortgage. the mortgage was down to 40,000. Now it's at 66k.

The way i wanted to structure the deal is to buy the property with 1,000 down. 5k rehab and pocket $250 off the deal for a 5 year balloon then sell the property at 5 years. I'll make 15k total after 5 years just off rents with about 5k to 6k in holding for repairs and vacancy. Pulled the amortization table and the home will be down to 60k. if i choose to sell then ill sell for 70-72k. pulled comps and that's about the sweet spot for this property.  

From the looks of it.. this may not be a good deal unless I'm in it for the long haul. Am i missing anything here?

Originally posted by @Joshua Lowery :

I get both of your point of views @Doug Pretorius and @Jay Hinrichs. 

The reason why the mortgage is so high is because the home owners took out a loan against the mortgage. the mortgage was down to 40,000. Now it's at 66k.

The way i wanted to structure the deal is to buy the property with 1,000 down. 5k rehab and pocket $250 off the deal for a 5 year balloon then sell the property at 5 years. I'll make 15k total after 5 years just off rents with about 5k to 6k in holding for repairs and vacancy. Pulled the amortization table and the home will be down to 60k. if i choose to sell then ill sell for 70-72k. pulled comps and that's about the sweet spot for this property.  

From the looks of it.. this may not be a good deal unless I'm in it for the long haul. Am i missing anything here?

reality is you wont.. because you wont get 60 months of rent.. and you will have turn over costs average tenant stays 18 months and the average turn over is 1000 to 2000 .. and if your not self managing then you have a lease up fee probably twice during that time so that's two months rent gone.. 

skinny sub too make no sense in a flat market.. if it was SF Bay area I get it or Charleston or other markets with strong upward price movement I get that.. but not in flat fly over country.   At least my opinion..  

@Jay Hinrichs Do you have an equally negative opinion of agents who  promise to sell a property for $X and tie it up for 3-6 months with $0 EM and then tell the seller: "It's your fault it didn't sell because you wouldn't lower the price"?

@Jay Hinrichs Would you mind linking me to the Ohio statute that says you can't advertise a property you have an interest in?

I can only find the standard stuff about needing a license to sell, lease, advertise etc. "for another".

There’s probably a couple dozen ways to structure your deal . I can see the deal sucks bro . Your rent is low for the price and you haven’t even yet taken into account so many other things making this a negative cash flow property by the end of the day ..so why even bother going through the trouble ,expense ,and risk ??? On another note you better watch yourself trying to do “ rent to own” . Those are considered predatory and teetering on being illegal these days if it isn’t setup by a licensed mortgager to a “T “and with tons of red tape stipulations on who qualifies

Originally posted by @Doug Pretorius :

@Jay Hinrichs Would you mind linking me to the Ohio statute that says you can't advertise a property you have an interest in?

I can only find the standard stuff about needing a license to sell, lease, advertise etc. "for another".

just search the old threads on BP I am sure its there.. I don't have time to do that I have a business to run LOL 

I've had lengthy discussions with the compliance officer at the DIvision and it is touchy...and despite what is in statute the Division has autonomy outside of statute...we have revised code, and administrative code, and internal rules, and egotistical politicians that need to punish people for no reason...so, if you're doing anything related to real estate with or without a license in this state, you're open to the Divisions authority.

I had a former business partner pay Vena Jones Cox $13,000 for her guru wholesale program in Cincinnati and I about pulled my hair out....so, I guess the point is that despite the rhetoric, criminals are still actively teaching classes on how to break the law...it's like paying for a class that teaches you how to speed....it's insanity. 

My prediction is that wholesaling compliance will be spreading throughout the country soon...real estate agents are an egotistical bunch with a ton of money and lobbying clout for days... 

Originally posted by @Brandon Sturgill :

@Doug Pretorius @Jay Hinrichs

https://youtu.be/9fi54S8nwUA

better than statute ;) 

Thanks Brandon I simply have better things to do than to prove my points with Doug but I do enjoy the light hearted banter with him.

When I sent in a flyer that I got from someone I know that did not own the property and was not licensed to my state regulator and wanted to know from THEM not from the Peanut Gallery what was acceptable this is the response I got back. So you can see they opened an investigation into this unlicensed wholesaler .. then I had a follow up in person meeting.. they were then opening up a case with some broker who had been listing the properties on MLS prior to the wholesaler owning them.. so not sure where it will all go..

However the guy that sent me the flyer she just flat told him if he wants to continue to needs to get licensed  commission are negotiate up or down.. but you simply cant market a property you don't own.. She also went into the equitable interest selling a contract theory and debunked that as well..  AT LEAST from the states point of view and anyone living in Oregon that's really all that matters.  but the wholesale gurus will come through Portland and sell their programs and never mention any of this.. 

"

State of Oregon - Real Estate Agency

Frances Hlawatsch | Financial Investigator

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The youtube video that got shared is the most recent publicly facing statement from the Ohio Division.  Obviously, they aren't going to lay out the legal ways to do what they clearly don't want happening.  I've had several conversations with enforcement folks in Columbus and there are certainly ways to still wholesale legally in Ohio, but you certainly CAN NOT advertise publicly a house that you don't own.

Doesn't matter what we think the law says or doesn't say.  The Division will begin an enforcement action and will fine you and you will pay it.

Originally posted by @Sean Cole :

The youtube video that got shared is the most recent publicly facing statement from the Ohio Division.  Obviously, they aren't going to lay out the legal ways to do what they clearly don't want happening.  I've had several conversations with enforcement folks in Columbus and there are certainly ways to still wholesale legally in Ohio, but you certainly CAN NOT advertise publicly a house that you don't own.

Doesn't matter what we think the law says or doesn't say.  The Division will begin an enforcement action and will fine you and you will pay it.

 apparently its the same here In Oregon  other wise why even have a real estate brokerage industry and licensing etc. 

the problem  with the equitable interest BS  and selling a contract..  that the Gurus hang their hat on is that the regulators don't acknowledge it..  at least in my talk.. its like if your business model or scheme to to replicate what an agent does.. IE tie up a property advertise it for sale bring two parties together for the expectation of compensation  ( how ever you want to couch it)  that's selling real estate  simple as that.. 

But anyway..  does not matter folks will do it until they are caught just like they speed until they get to many tickets.. or drive on a suspended license .. etc etc.. In our state though if you get wrung up for this  first time might not be too costly 5k or a little more second time or someone who has been doing it for years they face some pretty severe penalties.. 

Then In Oregon on top of all this you need a developers license if your going to flip homes in any manner.. I got fined twice on this one cost me 6k last year.. even though I had my developers license turns out you need it in the name of the exact LLC that owns the asset and since I work under multiple LLC s and I am personally licensed as a developer that's not good enough.. so I now have 3 separate developers licenses with 3 bonds 3 separate insurance polices etc etc.. and our state is just not really going hard on these folks. they literally drive around see a house being worked on pull title and if they don't see a developers license you get a nasty gram and a fine straight away.

!.. For sale contract  its written on an 8.5 X 11 form it relates to real estate but that's all I can say because I don't actually own the collateral the contract talks about I just want to make an assignment fee   ::::::   

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