Would you do this Subject To Deal?

Question

I'm looking at a subject to deal and trying to see if its a deal I should explore in full. I am a buy and hold investor and I am trying to build up my portfolio.

The deal has roughly $160,000 of outstanding debt but mortgage payments for 2019 are around $850. Market value for the house is around $170,000 so the equity in the house is very slim. House is in good condition and 2000's build.

Market Rent would be around $1,300. Only needs paint to bring it to rent condition.With back payments and finder fee I would be in 15k on the entry. Cash reserves for me after the deal would be around ~20k.

Would you do this deal? What risks should I be thinking about? Curious on your thoughts

Alan Grobmeier · Answer

@Chukwudi Motanya, if it is an up and coming area where I know I can increase rents 3-5%+ every year, yes.

Otherwise, 'maybe'.  I'd consider selling via lease/option.  That way I don't have to mess with maintenance & still get some money per month & cash reserves in case it went south.

Account Closed · Answer

I did a similar one in Mesa AZ. The underlying mortgage was $223,000 with a market value of $225,000 and a payment of $1217.

I gave the seller $100 and took over the loan Subject To. I paid my contractor $500 to clean up the property, I then sold it to a Tenant Buyer who gave me $25,000 option fee and pays me $1950 a month.

So far, I've gotten $25,000 cash for the option fee, plus about $700 a month for about $8,400 a year for 3 years (so far) so $25,2000 and he's paid down my principal about  $12,000 plus I get depreciation plus he takes care of all repairs and maintenance.

So, on $600 I've gotten well over $62,200 (so far) on a "slim" deal that had no equity. I don't know what CoC or ROI that is, but it's pretty good.

Send that deal to me if you don't want it. ;-) You can do these deals from California to Maine & from Alaska to Florida.

Arthur Schwartz · Answer

yes i would likely buy the house on the terms stated.  Why?  you are putting down about 10% and getting a very good return on capital; you may refinance the mortgage to lower the payments.  the real issue is the neighborhood and whether there is good long term appreciation potential

Mitch Messer · Answer

Hey @Chukwudi Motanya! Yes, this is an extremely thin deal, but I might consider it with a few conditions:

• You mention a finder's fee, which suggests a third party is involved. Given the marginal nature of the deal, I'd definitely look to negotiate a smaller fee.
• I would definitely not just rent this deal. Assuming the house can support it, I'd only move forward if I could lease-purchase it, collecting at least $5-10K in non-refundable earnest money and slightly-above-market rent.
• I'd also want to know all the details of the underlying mortgage. It would have to be a low fixed-rate, 30-year note, with extra credit if it's already 10+ years in, so I'm getting decent amortization with each payment.

When you run your numbers, what cash-on-cash return and monthly cash flow do you see?

Would you do this Subject To Deal?

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