What's The Difference Between Using a Bank And Using Creative Finance - 4% Interest
I've been using "Subject To" and other various creative techniques for thirty years and I've learned a few things along the way that may make it easier and less risky if you are trying to use them yourself.
1) First, there is no such thing as "zero down". It can be "little" down or "someone else's money down" but don't make the mistake of thinking you don't have to have some skin in the game. I allocate $25,000 per property and rarely exceed that. Compare that to having to put 20% down on a house using bank financing which on a $400,000 property is about $80,000 plus closing costs and carrying costs. I am "all in" at $25,000 and I get most, if not all, of that back from the Tenant Buyer I sell to. I generally cash flow my properties, some people rehab, some "buy & hold" - all using Subject To, which usually I get 4% interest.
2) Order a Title Report on every property - it is insane not to and they generally run $50 to $60. I didn't say Title Insurance, I said Title Report. And know what you are looking at. If necessary, include the Title insurance.
3) Have reserves. You need to have on hand or access to enough money to cover the underlying mortgage, utilities, HOA and various carrying costs in the event the house goes vacant for a few months. You affect the credit of the person who's property you are taking "Subject To". If you start missing payments and messing up their credit, they can sue you. Oh yeah, they didn't mention that on the late night TV ad, or the Youtube "guru", or the "Two Hour" real estate investor seminar you went to, did they? It's a serious business and you have to take it seriously.
4) Use Escrow to close. Table closings are a thing of the past. The risk is not worth it. Escrow can run to $1,500 or so, but a lawsuit can run $25,000 to $150,000. And a lawsuit can run a year or more which ruins your whole day.
5) Decide your exit strategy before you buy the property.
6) Record the Deed. Omygosh, what about Due on Sale? It is possible that the deed could be called, but I've done more of these than I can remember and I've not had a single one called. Don't try to hide ownership in a Land Trust. If it looks suspicious, they will dig deeper when they sue you. There is a proper way to do this step and most people won't take the time to learn or somehow think they are immune to it. It's wise to do this in specific ways depending on if you are in California or Arizona or Texas or Ohio. Laws are different in different parts of the country.
7) Know your options in the event that the Deed does in fact get called. There are several options, many of which put money in your pocket. But, Deeding back to the seller is not a smart move. Buying in a Land Contract is not a smart move. and using an
Executory Contract is not a smart move. Know what is legal and works.