Subject 2 purchase

[Dawson Brewer]

Hey y’all. 

I’m looking at purchasing a property in SA as subject 2. Just need some help getting my ducks lined up. 

Interest rate is at 4.75% and the mortgage payment is slightly less than the market rent in that area. If anything, I’ll be coming a little out of pocket to rent it to set money aside for repairs. 

I’ve thought of a few exit strategies: wrap, lease to own, air bnb. And thought of refinancing it. 

What would a refi look like if I did it to fix up and immediately sell it? 

[Don Konipol]

Quote from @Dawson Brewer:

Hey y’all. 

I’m looking at purchasing a property in SA as subject 2. Just need some help getting my ducks lined up. 

Interest rate is at 4.75% and the mortgage payment is slightly less than the market rent in that area. If anything, I’ll be coming a little out of pocket to rent it to set money aside for repairs. 

I’ve thought of a few exit strategies: wrap, lease to own, air bnb. And thought of refinancing it. 

What would a refi look like if I did it to fix up and immediately sell it? 

If the mortgage payments (P+I+T+I) is “a little less than the market rent” you may need to be prepared to have a larger negative cash flow than you realize.  First, very few rental are occupied 100% of the time.  The average renter of a SFR stays 2 years; in many markets it can sit empty 30-90 days.  Second, general maintenance and repair costs depend on the condition of the house, the age of the house, and who is hired to do the work.  If your rental property is located in Phoenix, and the ac unit stops working in July, your repair cost may be 2-3times what you expect. Third, when you have tenant turnover, you’ve almost always need to repaint the interior - that’s on you, not the tenant.  Fourth, a perfectly good tenant with good references and track record can turn BAD - divorce, job loss, pregnancy, etc.  Depending on where the property is located 30-90 days to evict.  Fifth, elements outside your planning or control can increase expenses significantly; tax increases due to budgetary shortfalls, insurance costs doubling due to natural disasters, tenant damage beyond what the security deposit will cover.  Sixth, releasing after a tenant vacates may necessitate paying a Realtor fee. Add tax return preparation fees, bookkeeping expenses, bank fees, potential legal fees, and the major expense of replacing a major item, such as AC or water heater.  

[Rick Pozos]

I have done a few sub-to deals where I pay the seller a little, catch up the payments, and then get a 2nd on the property from a friend or family to rehab. I sell within 4 or 5 months. New buyer gets a new loan and the old one is paid off. Everyone is happy.