I have a question about a property that I think could make a good subject to deal, but because I'm new to all this I'm not sure so I'm seeking some guidance here from the more experienced investors.
History: We initially found this duplex earlier in the year. We got our financing in order and had our realtor contact the seller's agent. We scheduled a showing and quickly got the home under contract after some negotiating. During inspection we found out the home needed some big ticket items replaced: both AC units, both furnaces, some electrical work, and mold was present in the bathrooms. Cosmetic work also needed to be done to both units. Seller is unable to repair/replace anything. We got bids for all the major system updates and for paint, carpet, etc, and we estimated 15K to get the home in good condition, which we were ready to do. Unfortunately, our lender would not extend us financing on this home due to its condition. We scrambled trying to find financing, and ultimately had to let the property go.
The property has since been taken off the market. We know the seller is motivated and needs to get rid of this property. It has been vacant for some time now. Our plan was to purchase, rehab, and rent out. I don't know what the terms of his loan are, but I do know the asking price we agreed on was 77K. I don't think there is much equity here. We could rent both sides for at least 700/ month. I'm thinking about having our agent approach the seller again to see if he would be interested in selling the property subject to. I've been reading a lot about this strategy. It seems that most people hold onto the property for a very short time because of the due on sale clause.
How can a subject to work if we wanted to keep it and rent it out?
How would a cash out refinance work under these circumstances, if at all?
Would I need to hire a third party servicing company to make monthly payments on the existing loan or would I pay directly to the lender? How would I do that?
Thanks for reading, and thanks in advance for your help.
How do you know there is a mortgage? You could see if the owner would do seller financing then refi later.
Subject to: close at a title company and do a title search. You would take title to the duplex and you can pay the lender directly. As for refinancing, every bank is different. Find out how long you have to wait after you buy the duplex before you can refi.
You can do a joint venture with the seller where you buy it on subject to and a note
The amount in the note takes in consideration reselling costs about 10% minus repairs cost minus your joint venture fee
You do need private lender money for the repairs
Unless it is a FHA loan or VA loan, it will not be assumable and a "subject to" purchase will trigger the due on sale clause of the mortgage. It sounds like a private money loan for the purchase and renovation is an option. once the property is improved, you could look at refinancing the private money loan into a permanent long-term fixed rate loan.
I have purchased many homes by taking over the payments or buying "sub-to". I did a title search first to make sure that the sellers did not have any liens or judgements against them. I had the property deeded to me and kept making their payments. There is a due on sale clause that MAY come into play, but never has for me. I make the payments on time, put the account number and the address of the property on my check or I go online and make the payment directly.
I only like this situation for short term to fix up, but you could fix and then refinance into your name after the repairs are done. This way you are taking over payments for 6 months. I dont like the threat of due on sale hanging over my head even though it has never happened to me or anyone that I know. Thats why I only use this for short term financing.
You will need a release of information authorization from the seller so that when you need the payoff info from the bank, they will give it to you to refinance or sell. Power of attorney would be good to get also in case there is an insurance claim or a refund of some kind.