Help with a subject to

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Help with a subject to

Chris Igard
San Antonio, TX · Member since 2017 · 60 posts · 12 votes

Hello all and thanks for any tips in advance.

 My realtor is selling  a trashed out home that’s owned by a widower in their 80s, they are already behind one month on the payment and will more then likely be looking at 2 months shortly.  The home will need new, flooring, paint etc.  If the home were in good shape it would likely sell for $200-210k based on the comps and sit for a 2-3 months.  They owe about $140k on the property and an investor has offered $130k to purchase it site unseen (it’s trashed on the inside) but will look at it tomorrow and likely go lower. I offered to buy it subject to but I’ve never done one before.  What would be a good amount here if every cash investor is coming in at the $120s? The realtor would like them to pocket some money (translation) the realtor would like to make a 6 percent commission managing both sides. Lastly how does a subject to transaction work as far as closing fees? Thanks in advance. 

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Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Quote from @John Clark:
Quote from @Chris Igard:

Hello all and thanks for any tips in advance.

 My realtor is selling  a trashed out home that’s owned by a widower in their 80s, they are already behind one month on the payment and will more then likely be looking at 2 months shortly.  The home will need new, flooring, paint etc.  If the home were in good shape it would likely sell for $200-210k based on the comps and sit for a 2-3 months.  They owe about $140k on the property and an investor has offered $130k to purchase it site unseen (it’s trashed on the inside) but will look at it tomorrow and likely go lower. I offered to buy it subject to but I’ve never done one before.  What would be a good amount here if every cash investor is coming in at the $120s? The realtor would like them to pocket some money (translation) the realtor would like to make a 6 percent commission managing both sides. Lastly how does a subject to transaction work as far as closing fees? Thanks in advance. 

Don’t. You got too many issues, including the fact that the mortgage is already on the bank’s radar due to delinquencies. You are almost guaranteed a due on sale call.

I agree with this - this loan is on the servicer's radar because of the delinquency. There is a much higher than normal probability that the loan will be accelerated if the property changes hands. Also, I'm not really seeing where there is much equity in this deal. If the loan balance is at $140k, ARV is $200k, and the property needs a trashout plus full interior refresh, youre probably looking at putting $20k-$40k into, depending on the size of the house and quality of finishes.

So between rehab costs, transaction fees, and costs to bring the loan current, you'll be into this property for $175k-$185k on day 1, all to grab maybe $15k in equity? And to have the axe of a probable loan acceleration hanging over your head? I dont see where this is a deal.

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  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    1y
    Quote from @Chris Igard:

    Hello all and thanks for any tips in advance.

     My realtor is selling  a trashed out home that’s owned by a widower in their 80s, they are already behind one month on the payment and will more then likely be looking at 2 months shortly.  The home will need new, flooring, paint etc.  If the home were in good shape it would likely sell for $200-210k based on the comps and sit for a 2-3 months.  They owe about $140k on the property and an investor has offered $130k to purchase it site unseen (it’s trashed on the inside) but will look at it tomorrow and likely go lower. I offered to buy it subject to but I’ve never done one before.  What would be a good amount here if every cash investor is coming in at the $120s? The realtor would like them to pocket some money (translation) the realtor would like to make a 6 percent commission managing both sides. Lastly how does a subject to transaction work as far as closing fees? Thanks in advance. 

    Don’t. You got too many issues, including the fact that the mortgage is already on the bank’s radar due to delinquencies. You are almost guaranteed a due on sale call.
    1Reply
    • Patrick Roberts
      Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
      1y
      Quote from @John Clark:
      Quote from @Chris Igard:

      Hello all and thanks for any tips in advance.

       My realtor is selling  a trashed out home that’s owned by a widower in their 80s, they are already behind one month on the payment and will more then likely be looking at 2 months shortly.  The home will need new, flooring, paint etc.  If the home were in good shape it would likely sell for $200-210k based on the comps and sit for a 2-3 months.  They owe about $140k on the property and an investor has offered $130k to purchase it site unseen (it’s trashed on the inside) but will look at it tomorrow and likely go lower. I offered to buy it subject to but I’ve never done one before.  What would be a good amount here if every cash investor is coming in at the $120s? The realtor would like them to pocket some money (translation) the realtor would like to make a 6 percent commission managing both sides. Lastly how does a subject to transaction work as far as closing fees? Thanks in advance. 

      Don’t. You got too many issues, including the fact that the mortgage is already on the bank’s radar due to delinquencies. You are almost guaranteed a due on sale call.

      I agree with this - this loan is on the servicer's radar because of the delinquency. There is a much higher than normal probability that the loan will be accelerated if the property changes hands. Also, I'm not really seeing where there is much equity in this deal. If the loan balance is at $140k, ARV is $200k, and the property needs a trashout plus full interior refresh, youre probably looking at putting $20k-$40k into, depending on the size of the house and quality of finishes.

      So between rehab costs, transaction fees, and costs to bring the loan current, you'll be into this property for $175k-$185k on day 1, all to grab maybe $15k in equity? And to have the axe of a probable loan acceleration hanging over your head? I dont see where this is a deal.

      2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    1y

    @Chris Igard what is the interest rate? Unless it is very low there is no reason to do subject 2.  A subject 2 transaction doesn't make a bad deal a good deal. Why pay more than it is worth?

    Now if the interest rate is 2% then maybe it is a deal but probably not. 

    A belter solution is a short sale. This is where the bank takes less than due as payment in full.

    1Reply
    • Chris Igard
      OP
      San Antonio, TX · Member since 2017 · 60 posts · 12 votes
      1y
      Thanks, I’m thinking if I do a subject to itd be better off as I won’t have to put 20 percent down to fund the deal which would be the case with a short sale.  

      Quote from @Ned Carey:

      @Chris Igard what is the interest rate? Unless it is very low there is no reason to do subject 2.  A subject 2 transaction doesn't make a bad deal a good deal. Why pay more than it is worth?

      Now if the interest rate is 2% then maybe it is a deal but probably not. 

      A belter solution is a short sale. This is where the bank takes less than due as payment in full.


      1Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      1y
      Quote from @Ned Carey:

      @Chris Igard what is the interest rate? Unless it is very low there is no reason to do subject 2.  A subject 2 transaction doesn't make a bad deal a good deal. Why pay more than it is worth?

      Now if the interest rate is 2% then maybe it is a deal but probably not. 

      A belter solution is a short sale. This is where the bank takes less than due as payment in full.

      Best comment on Subject To in a Loooong time
      "A subject 2 transaction doesn't make a bad deal a good deal."


      1Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    1y
    Quote from @Chris Igard:

    Hello all and thanks for any tips in advance.

     My realtor is selling  a trashed out home that’s owned by a widower in their 80s, they are already behind one month on the payment and will more then likely be looking at 2 months shortly.  The home will need new, flooring, paint etc.  If the home were in good shape it would likely sell for $200-210k based on the comps and sit for a 2-3 months.  They owe about $140k on the property and an investor has offered $130k to purchase it site unseen (it’s trashed on the inside) but will look at it tomorrow and likely go lower. I offered to buy it subject to but I’ve never done one before.  What would be a good amount here if every cash investor is coming in at the $120s? The realtor would like them to pocket some money (translation) the realtor would like to make a 6 percent commission managing both sides. Lastly how does a subject to transaction work as far as closing fees? Thanks in advance. 

    Not enough information… However, Sub2 is not really promoted here on Bigger Pockets. I have had realtors bring us Sub2 deals before. It can be a challenge. Just a heads up I do not teach or promote Sub2…in other words, I do not handhold people and help them buy Sub2 because if something goes wrong I do not want that on me.

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