Contractor 路 Garland, TX 路 Member since 2014 路 186 posts 路 9 votes
I've been doing some reading and learning today and got to wondering: If a seller doesn't go for a subject to deal, would a lease option or perhaps a lease-purchase be the next best thing in order to get the property for a rehab and flip? Please advise.
Investor 路 Sherman Oaks, CA 路 Member since 2008 路 6k+ posts 路 3k+ votes
11y
In Texas, I would never rehab unless I got the deed (sub2).
I like minor rehabs and JV w the seller.
Say $100K ARV and needs minor kitchen and bathrooms, everything else ok, eg roof, foundation, hvac, etc. Rehab costs $10K
WE BUY HOUSES offer .65 = $65K less $10K - holding costs $5K = $50K
That is a sh@t offer.
I say,
"Mr and Mrs Seller, I can bring my money in on the deal, we can partner, I get paid when the house sells. This will net you more money than the WE BUY HOUSES folks.
Why? The WE BUY HOUSES folks need to buy it, close, pay the costs to buy, and rehab it, pay the costs to hold, the costs to sell, and net a minimum amount of money."
Property Manager 路 New Orleans, LA 路 Member since 2013 路 184 posts 路 34 votes
11y
@Brian Gibbons can you elaborate on the logistics of the strategy you are describing? Sub to then a Wrap for ownership? How would this compare to aquiring the property via Bond for Deed and then renovating it?
Contractor 路 Garland, TX 路 Member since 2014 路 186 posts 路 9 votes
11y
@Brian Gibbons If I understand you correctly, you are saying that sub2 is the most desirable way to acquire a property for a real estate investor and 2nd best would be a wrap, correct?
Investor 路 North Richland Hills, TX 路 Member since 2011 路 789 posts 路 403 votes
11y
@Brandon G. If you are trying to control the property, rehab, then flip it, you could do a lease option with the seller, rehab, then flip it, yes. However, I would have a title search done first, then file a memorandum of option to cloud the title. AS @Brian Gibbons mentioned, doing a sub 2 to control is is better, as you would be on title.
Investor 路 Sherman Oaks, CA 路 Member since 2008 路 6k+ posts 路 3k+ votes
11y
In Texas, I would never rehab unless I got the deed (sub2).
I like minor rehabs and JV w the seller.
Say $100K ARV and needs minor kitchen and bathrooms, everything else ok, eg roof, foundation, hvac, etc. Rehab costs $10K
WE BUY HOUSES offer .65 = $65K less $10K - holding costs $5K = $50K
That is a sh@t offer.
I say,
"Mr and Mrs Seller, I can bring my money in on the deal, we can partner, I get paid when the house sells. This will net you more money than the WE BUY HOUSES folks.
Why? The WE BUY HOUSES folks need to buy it, close, pay the costs to buy, and rehab it, pay the costs to hold, the costs to sell, and net a minimum amount of money."
Investor, Entrepreneur, Educator 路 Springfield, MO 路 Member since 2009 路 21k+ posts 路 12k+ votes
11y
I'd bet in Dallas, like most everywhere, you'd need a willing seller to work with you. A lease, nor an option, conveys title interests that allow you to contract for work to be done on a residence and building permits are generally issued to licensed contracts with contracts with an owner or in the owner's name. Neither contract, lease or option can require you to perform improvements, that would be a construction agreement.
IMO, a seller would be nuts to have work done with them being liable without supervision and insurance. As a tenant, you can't insure the dwelling, so you'd need a loss payee assignment under your construction agreement. That construction agreement may not be valid without a license.
Forget any construction financing, you can't give the property as collateral.
If suppliers extend credit for materials, they will generally want the address and owner to sign or a licensed contractor with a valid construction agreement allowing liens to be created.
You can file your option and cloud title, but that cloud doesn't prevent an owner from selling the property subject to that option, the new owner will be obligated to sell it under the option, but if you fail to exercise it as agreed, they will own the place.
I agree with Brian and John, go with a Sub-to as that puts you in title to effect work needed, otherwise your landlord will be in charge of what goes on in reality. :)
Property Manager 路 New Orleans, LA 路 Member since 2013 路 184 posts 路 34 votes
11y
@Bill Gulley in Louisiana we have Bond for Deed. Can this be used as you guys describe a sub 2 can be used? Do you see any potential pitfalls with purchasing BFD, rehabbing and then reselling?
Investor 路 North Richland Hills, TX 路 Member since 2011 路 789 posts 路 403 votes
11y
What @Brian Gibbons is referring to with JVing with the owner is often called "wholetailing" where you are bringing in funds for repair but have a lien on the property.
Investor, Entrepreneur, Educator 路 Springfield, MO 路 Member since 2009 路 21k+ posts 路 12k+ votes
11y
A BFD is safer, long standing transaction and building permits and suppliers, contractors generally accept the interests conveyed as you can refinance in a BFD and payoff the contract. An option is a purchase transaction as such interests are not conveyed.
Still, the caution as to tying a property up still exists, another buyer can purchase a property subject-to an installment contract unless crafted with restrictive deed/covenants which most are not.
LA. has specific requirements for a BFD, follow that closely, however, the current law may be behind on title issues recognized by ALTA, so contact a title company as to insuring title and the execution of simultaneous deeds. I'd suggest your attorney simply make it a seller financed wrap with a deed of trust, seems the OP was turned down on the Sub-to. :)
Investor 路 Sherman Oaks, CA 路 Member since 2008 路 6k+ posts 路 3k+ votes
11y
Michael you don't have the deed
Contract for deed, Bond for deed, agreement for deed, land contract, are all agreements the don't give you strong title.
Even the title on a wraparound mortgage is a strong enough to do things is Bill G wrote above.
I'd check with your attorney about subject to existing financing and getting the deed.
When I do a subject to reassure the seller that the payments will be paid I offer to hold a warranty deed in the name of the seller in escrow in case I default to avoid foreclosure.
Also a warning to anybody doing a wraparound mortgage or a subject to, The loan could be called due, not that it's going to be called due but it could be called due
What this means is you should have some kind of cash and credit partners available to be able to get a private mortgage in case the loan is called.
Another alternative is for you to be able to qualify in credit and down payment for that existing financing to be rewritten.
Contractor 路 Garland, TX 路 Member since 2014 路 186 posts 路 9 votes
11y
@Brian Gibbons Thanks for the follow up. I'll take you up on your offer for a phone chat. I just have some more learning to do before I even know what to ask. I find that to be the biggest challenge is not knowing enough to even know what to ask experts such as yourself. But I'm learning slowly bit by bit!
Investor 路 Marietta, GA 路 Member since 2015 路 6 posts 路 1 vote
11y
The scenario I am referring to is a distressed property being sold Lease with the option to buy, owner financed. However the property needs major renovation; kitchen and bath gutted and rehab, install HVAC, update electrical, install pocket windows also several prehung doors and some sheetrock repair, paint I can do all of the work myself. Property is in Atlanta Georgia and I want to protect any investment
The scenario I am referring to is a distressed property being sold Lease with the option to buy, owner financed. However the property needs major renovation; kitchen and bath gutted and rehab, install HVAC, update electrical, install pocket windows also several prehung doors and some sheetrock repair, paint I can do all of the work myself. Property is in Atlanta Georgia and I want to protect any investment
You can do joint ventures, lease purchases and owner financed deals in Georgia.
I'm a little confused by what you're saying with the "Lease option to buy, owner financed". To me that say's your controlling the property via a lease option and then ultimately when you purchase the property down the line, the owner will provide the financing. If you're gonna do the owner financing route, why not just do that at the start?
You might run into the issue where even though you have a written, signed option agreement to purchase, the owner may not honor the written terms. Get ownership and control with the owner financing straight out of the gate if they are willing to do it now and then do the rehab.