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Jarrod Williams
  • Investor
  • Lexington, KY
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Subject to Example Discussion

Jarrod Williams
  • Investor
  • Lexington, KY
Posted May 26 2017, 16:10

Hey guys.  Trying to iron our the details of "subject to mortgage" deals and finding little examples out there that actually walk through the numbers.  So I made up a real example from my current market and I'd love to get some feedback about the various parts of it, do's and dont's, things I am missing or need to look further into, etc.  Please refrain from discussing the merits of this strategy as this is more for understanding everything more thoroughly.

Home listed on my local MCC website.  Individual owes $205,380.01 (5/26/17), paid $213,000 in 2012.  Appraisal amount for MCC is $235,000.  I think this is way low and in the current market would sell for $265,000+, supported by recent comps.  Plenty of room in the nieghborhood for appreciation with homes over $450,000 in the area.  Median sale price in the neighborhood rose 7.7% last year.  I know the area well and expect that to continue if not increase.

Example offer:  Offer the owner $220,000 subject to mortgage.  I pay the owner $14619.99 and take over the mortgage payments.  Mortgage payments based on around $205,500 assuming they put down 3.5% would be around $972.  The owners are a family that would love to stay in the unit.  I offer to rent it to them for $1000 a month.   This covers the mortgage and I just gave them 15K so it buys them a couple of years to stay in their house.  We agree to eventually increase the rent to something comparable once they get their finances in order.  If all of this works well once they eventually decide to move I can sale the home for around $250,000 x 7% for the # of years they rented.

I took this all the way out and made a ton of assumptions just to get the dynamics out for discussion.  Again, please don't focus on whether this is a good or bad idea but rather is this how it would work?  Thanks.

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