Creative Deal with VA Loan-Subject-To looking for suggestions!

Atlanta, Georgia
Innovative Strategies
2yFollow

Creative Deal with VA Loan-Subject-To looking for suggestions!

Sandra McEwanPro Member
Rental Property Investor · Tampa FL and Augusta, GA · Member since 2021 · 68 posts · 14 votes

Hello, I am looking for some insight and help with this creative deal.  I am very new to CF and have been working with this other investor who is very green on this as well.  Here goes:

My deal is a triplex with a potential Subject-To, Mirror-wrap or anything else creative I can do.

VA loan 2.6% 28 years left

341k left on loan

Current property value 400k

mortgage is $2046 / cash flow is about ~200/month with current LTR all 3 units occupied after reserves.

Owner is going overseas at the end of December and either needs to sell, do creative deal or get a property manager. He wants to get into the building space in 2 years instead of buy and hold small multifamily. In creative deal, Seller agrees, I will keep the 2.6% rate for the life of the loan.

Rents together are: 2945k/month for LTR (included 1 vacant unit that will be rented soon)

Market rents after minor reno: 3400 for LTR below market

I can mid-term rent these as well: 4800 for MTR/STR hybrid

Reno: 5-10k

Seller wants 60k (his perceived equity) in 2years, nothing down and no monthly payment.

Seller wants a chunk in 2 years b/c he wants to start a new venture. 5 years doesn't interest him and I am not thrilled with monthly payments b/c there will be much transition. He doesn't really care for monthly payments anyway for equity. One unit is vacant and need to put in W/d hook up and get tenant and then potentially furnish some units for MTR next year. I understand his equity is actually much less if he were to sell on the market.

He wants more than 20k in 2 years. I could get an equity partner at some point.  We are looking at doing this subject to but have not agreed on the price (equity piece).

Any help is appreciated and curious what your thoughts are.  Thank you!!

0Reply
32 views

7 Replies

Jump to latestLatest
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    How confident are you in your rent numbers?

    What do you expect the value to be in 2 years?

    If you can have positive cashflow for 2 years and then sell, pay seller off and pocket some appreciation, why wouldn't you?

    Logical Property Management4.9453 Reviews
    WebsiteView Page
    0Reply
  • Sandra McEwanPro Member
    OP
    Rental Property Investor · Tampa FL and Augusta, GA · Member since 2021 · 68 posts · 14 votes
    2y
    Quote from @Michael Smythe:

    How confident are you in your rent numbers?

    What do you expect the value to be in 2 years?

    If you can have positive cashflow for 2 years and then sell, pay seller off and pocket some appreciation, why wouldn't you?

    Hi Michael, I feel good about the rent numbers because I have 6 units on the same street.  Average appreciation in this zipcode is 3%, but who knows where things will be in 2 years.  I may make some appreciation especially if we can agree on sub2/hybrid 40-50k in 2yr.  
    0Reply
  • Weston Walker
    Member since 2022 · 3 posts · 0 votes
    2y

    What market is this in? I currently raise capital for multifamily and looking to expand into sub-to.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    Ok, here’s my take based on IMPERFECT. information - LOL, and 45 years of real estate investing, lending, advising, brokering, and analyzing experience

    1. You’re “working too hard” to put together a deal that nets $200 per month, and probably nets nothing as you’re understating repairs and maintenance, vacancy loss, and depreciation  with three tenants

    2. If his equity is significantly less than $60k based on market prices, but he insists on $60k based on 2.6% mortgage, then this is only justified if you can ASSUME mortgage in your name at 2.t% rate.  The fact that he’s allowing a subject to may gAin a little extra equity, but a subject to is too risky for both parties to assign much extra equity value to it.  

    3. On small real estate properties I’ve seen people make money through price appreciation, through equity build up (mortgage amortization, especially when held long term), and through purchase discount.  I’ve NEVER seen anyone, in a small real estate project, make any significant money through cash flow, unless they bought for cash.  Most markets end up priced so that cash flow just doesn’t provide anything more than the ability to net expenses, make mortgage payments, and (hopefully) keep the property in good repair and upgraded to market over the years.  

    4. You may have entered negotiations TOO EARLY.  Most people are, initially unrealistic in their price and terms expectation.  AFTER the event causing their need to sell takes place, the willingness to sell for less on easier terms significantly increases.  Often better to walk away, and come back in 90 days and see if it’s still on the market.

    In 1979-80 over a 15 month period of time I purchased 43 SFRs.  I made offers on over 200.  Many were purchased 6-12 months AFTER I made initial contact with the owner when the seller came back to me 6 months to a year later with a much more willingness to meet MY offer.  I can’t tell you how many sellers thought they had a unique property that couldn’t be duplicated and would fetch a premium price in the market when all they had was another tract house. 

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    0Reply
  • Sandra McEwanPro Member
    OP
    Rental Property Investor · Tampa FL and Augusta, GA · Member since 2021 · 68 posts · 14 votes
    2y
    Quote from @Don Konipol:

    Ok, here’s my take based on IMPERFECT. information - LOL, and 45 years of real estate investing, lending, advising, brokering, and analyzing experience

    1. You’re “working too hard” to put together a deal that nets $200 per month, and probably nets nothing as you’re understating repairs and maintenance, vacancy loss, and depreciation  with three tenants

    2. If his equity is significantly less than $60k based on market prices, but he insists on $60k based on 2.6% mortgage, then this is only justified if you can ASSUME mortgage in your name at 2.t% rate.  The fact that he’s allowing a subject to may gAin a little extra equity, but a subject to is too risky for both parties to assign much extra equity value to it.  

    3. On small real estate properties I’ve seen people make money through price appreciation, through equity build up (mortgage amortization, especially when held long term), and through purchase discount.  I’ve NEVER seen anyone, in a small real estate project, make any significant money through cash flow, unless they bought for cash.  Most markets end up priced so that cash flow just doesn’t provide anything more than the ability to net expenses, make mortgage payments, and (hopefully) keep the property in good repair and upgraded to market over the years.  

    4. You may have entered negotiations TOO EARLY.  Most people are, initially unrealistic in their price and terms expectation.  AFTER the event causing their need to sell takes place, the willingness to sell for less on easier terms significantly increases.  Often better to walk away, and come back in 90 days and see if it’s still on the market.

    In 1979-80 over a 15 month period of time I purchased 43 SFRs.  I made offers on over 200.  Many were purchased 6-12 months AFTER I made initial contact with the owner when the seller came back to me 6 months to a year later with a much more willingness to meet MY offer.  I can’t tell you how many sellers thought they had a unique property that couldn’t be duplicated and would fetch a premium price in the market when all they had was another tract house. 


    Thank you for your insight and advice.  This helps tremendously.  I understand and it does make sense to walk away and see if the seller's motivation changes.  

    0Reply
  • Sandra McEwanPro Member
    OP
    Rental Property Investor · Tampa FL and Augusta, GA · Member since 2021 · 68 posts · 14 votes
    2y
    Quote from @Account Closed:
    Quote from @Sandra McEwan:

    Your comment: "Seller wants 60k (his perceived equity) in 2years, nothing down and no monthly payment."

    Short term balloons are deal breakers unless you have a long history of predicting the future correctly. Look for opportunities that give you control of your future. This one is going to control you.

    @Account Closed Thank you!  I appreciate your advice!  He would engage in a conversation about a partnership where I put no money down too.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free