subject to real estate deal from entry to exit plan

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subject to real estate deal from entry to exit plan

Yangchen Dolkar
Member since 2021 · 5 posts · 0 votes

Hi! BP friends,

I'm located in New York, Queens area. I'm first time home buyer. I met with a seller who is willing to do 'subject to' to sell his 1.7 million 4 family house but we both don't exactly know how does it work. he has around 600k on loan and because it was his 1031 exchanged house, he's gonna be paying a lot in tax. 

My question is when I take over his loan of 600k, how can we work with 1.1 million? 

and when he files tax, how he gets taxed? 

If someone can give me entry and exit plan for this deal, i will highly appreciate. I'm sure theres so many things I may not be aware of for subject to deals. any informations you experienced people give me. I thank you in advance.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
Quote from @Yangchen Dolkar:

Hi! BP friends,

I'm located in New York, Queens area. I'm first time home buyer. I met with a seller who is willing to do 'subject to' to sell his 1.7 million 4 family house but we both don't exactly know how does it work. he has around 600k on loan and because it was his 1031 exchanged house, he's gonna be paying a lot in tax. 

My question is when I take over his loan of 600k, how can we work with 1.1 million? 

and when he files tax, how he gets taxed? 

If someone can give me entry and exit plan for this deal, i will highly appreciate. I'm sure theres so many things I may not be aware of for subject to deals. any informations you experienced people give me. I thank you in advance.

This is not a good candidate for a “subject to “ deal.  Too much equity.  No one is going to make a second loan on a property where the first loan can be called for due on sale violation.  The only way to make this work is if seller is willing to carry the majority of his equity in a seller financed second lien or a wrap around note.  And the buyer investor better have the where with all to come up with the balance of the subject to note should the note be called, to be safe. 
Private Mortgage Financing Partners, LLC
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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    3y
    Quote from @Yangchen Dolkar:

    Hi! BP friends,

    I'm located in New York, Queens area. I'm first time home buyer. I met with a seller who is willing to do 'subject to' to sell his 1.7 million 4 family house but we both don't exactly know how does it work. he has around 600k on loan and because it was his 1031 exchanged house, he's gonna be paying a lot in tax. 

    My question is when I take over his loan of 600k, how can we work with 1.1 million? 

    and when he files tax, how he gets taxed? 

    If someone can give me entry and exit plan for this deal, i will highly appreciate. I'm sure theres so many things I may not be aware of for subject to deals. any informations you experienced people give me. I thank you in advance.

    This is not a good candidate for a “subject to “ deal.  Too much equity.  No one is going to make a second loan on a property where the first loan can be called for due on sale violation.  The only way to make this work is if seller is willing to carry the majority of his equity in a seller financed second lien or a wrap around note.  And the buyer investor better have the where with all to come up with the balance of the subject to note should the note be called, to be safe. 
    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
  • Yangchen Dolkar
    OP
    Member since 2021 · 5 posts · 0 votes
    3y

    Thank you so much Konipol for the info!

    If he were to do the seller finance on the equity. He was concerned about his capital gain as he will have to pay tax on almost million dollar because it's 1031 exchange. How it will affect on his capital gain?

    As far as my payment on 'due on sale' I have few hundreds grants and possibly I will have 200/300k in equity from the house. Comparable in the the area is showing around 2 mill.  Seller is asking 1.7mill.Thank you again.

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  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    3y

    @yang;  he'll pay cap gains via installment sale tax treatment which is to his advantage.  Google installment sale tax treatment on capital gains.   Its the BEST scenrio for the seller here.  He gains via when he gets less cash at the time of sale.  and pays gains only on the principal recieved via the wrap note per Don.

    Any decent closing attorney can write up a wrap note.  BUT iif it where me I would NOT pay the underlying mortgage to the seller.  I'd create 2 payment methods. One to the seller for his portion of the eequity in the wrap and another directly to the bank.  I would NOT trust any seller to continue making the underlying mortgage payments.  What if he just stops and pockets the whole check you give each mo?

    Still might make sense.  You did not give every number, the address, all the numbers to give more feed back.

    1Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    3y

    @Yangchen Dolkar

    Subject To real estate investing strategies can be one of the most accessible methods of starting in real estate investing if you are a new investor, and for experienced investors, it can be yet another strategy to add to your toolbox of creative real estate financing.

    This is because Subject To is one of the only strategies in which you can acquire properties by structuring a deal in which you may not have to have cash or credit.

    Read this article for detailed information https://www.reikit.com/wholesa...

    All the best!

    [email protected]832-776-9582Podcast Guest on Show #469
    NETWORTH BUILDERS5236 Reviews
    WebsiteView Page
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  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    3y

    #1 there's alot of BP sub to threads all repeating..  Wish there was less duplication.

    #2 per Wale but updating;  sub to still takes cash, at least the cash to cover closing $1.5k to 4k.  Today there's probably equity to give the seller, and possible mortgage arears.   $???   All houses need some fix up.  They might be living in now but they need at least paint some fixtures and usually flooring.  I like to replace hvac same time.  I'm keeping as rentals and its costing me total to have rented;  $40k to $60k cash.  My last sub to was 40k to the seller for his equity, $3k to close and $5k to fix up.  The prior sub to it was opposite, nothing to the seller but $50k to fix up... No way to use debt unless its personal unsecured debt for the cash you put into a sub to.   

    It is possible to assign for a fee a sub to.  I paid $5k once.  But I used 100% my own documents, contracts.  Never use the wholesalers contract with the seller on a sub to!!   Connect to me, PM me for my training PDF on how to paper/close a sub to.

    JV / partnerships on buy and holds are too messy for me so I'd gnaw my arm off before I JV (again). Theres more negatives to JVs then talked about or you imagine the joy of taking someones cash to fund a deal. LOL

    Just adding that there are no zero cash deals.  Maybe wholesales but today they are so difficult forget wholesaling folks.

    Best to all, curt

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