Buying - Not Using Cash or Financing From a Bank - No Worries?

[Ken M.]

It Used to be "simpler" to use Subject To to buy properties

With the property increases since 2022, it's not so simple anymore

People won't just walk away from huge amounts of equity - so what we do is determine how much cash we are willing to pay up front and how much liability we are willing to assume as a carry back, so we have something to offer for their equity

That usually adds to the monthly payment as a second loan

In order to make offers, we need to have numbers in mind that fit that scenario

Don't forget that when you turn around and sell on a lease/option, the total of those two payments, plus taxes, plus insurance, plus HOA, etc needs to be covered by the lease payment and still be something people can and are willing to pay. So you need some idea of what rents are for that neighborhood.

Yeah, it gets a little complicated, but it's necessary, so that we're not wasting time on deals that won't work or that we'd lose money on. (There is a popular guy on Facebook right now, on a USA tour in fact,  that doesn't teach or worry about that phase, "counting the cost", but to me, it's critical )

Then once you know your numbers we have something to look for

Because it's "simple" to buy a house with creative financing, but it's complicated to do it profitably

Once you sign a lease option to sell, it's a binding contract.

So, to be successful you need to know your numbers.

Start with how much you are willing to invest up front, consider marketing costs, most properties require some clean up or repairs, add in  holding costs while looking for a buyer, two or three months of expenses and that gives you an idea of how much you'll put into the property up front.

Then, with a general idea of that, run the numbers at about 6% interest on the carry back to determine how much that adds to your monthly expense.

So, if you can find a property where the seller is willing to do an equity carry back, of say $50,000 (or whatever the excess equity is) at 6% you add that payment to the existing payment to figure out how much you are on the hook for each month

In a Subject To, (SubTo) that payment has got to be made every month without fail or you face serious problems. (What, they didn't mention that in the SubTo course?) For shame!

Anyway, there should be a minimum of $300 a month positive cash flow for the deal to make sense. We prefer $500 as a minimum, but numbers have tightened since 2022

So, once you have some numbers, start looking. And of course, I'd be happy to answer questions to those who have an interest. ( a whole lot has been skipped over, as anyone with experience can already see). It's not the intention of this post to be exhaustive.

Whether you are new, looking for lenders or cash or real estate & considering Fix & Flip, BRRRR, or rental, as a buyer, I’d ask the owner / seller to be one of my private lenders with creative financing. This works for property in Southern California (CA), AZ, WA, and TX & GA.