Lease\option vs Sub2 then selling property

4 Replies

Hello everyone, I've been researching the site about the lease options and sub2 deals, and I'm little confused since this is not my forte. 

I have a prospective lead, a house with no equity, I want to tie it up and then resell for a profit within 2 years. 

Any suggestions on how to do this legally in PA. I was thinking lease option or taking over the payments and trying to resell the property. 

Let me know what you think, I know I'm short on details, but I'm working on getting everything from the seller as we speak.

I'm just trying to feel out if this something worth while or should I pass. Thanks Roc

First, having a property that has no equity means the liens against it is at a value close to the true market value. The only way to profit is to inflate the sale price, which, even if you could will be unethical and predatory.

Now, if rents are higher than the relationship to the market value, which is rare but can happen, then holding for cash flow is an option.

Two years isn't really long enough just relying on appreciation on most markets, unless you improve the property raising the value.

You make money in RE by buying at a good price and selling at market, not paying market and raising the price, unless you're rehabbing taking the value up by improving it or something about it, like changing value due to zoning or use.

Sounds like you're missing some fundamentals of RE. :) 

Although I don't know the laws in PA (truthfully I can't even spell your state...) I buy or acquire houses with no equity or that are even slightly upside down all the time.

One house I tied up 2 years ago the Seller called me about doing a short sale. I saw the property was in good condition and the value then was about $350. Then I found out the loan was $355(ish). I told the Seller she didn't have to short sale that I would give her $5000 down for a lease with an option to buy for the payoff amount of the loan.

2 years later I am in escrow with a buyer for $425 and the payoff on the loan is about $340(ish).

I love these deals!

This is actually our primary target in SFR. We call them Deltas because there is no delta (an engineering term for difference between two values) between the loan and the current market value.

Feel free to hit me up about this. I'm happy to share my paperwork and experience with you so you can do some Deltas too.

@Matt Skinner  , let's mention where that great,  deal was, appreciating about 9% a year? I'll guess in Cali. 

Totally agree that no equity deals can be picked up, takes greater knowledge along with a cooperating market environment.

Just FYI, I see you're starting out in the forums and you have a good RE background it seems, we are pretty much anti-guru on BP, not just me, but many others as well as management at some point as well. We also don't do under the radar solicitations asking people to contact us after each fantastic deal has  been announced.

Delta is a mathematical term, not unique to engineering, but finance, accounting, economics and statistical analysis.   

Most states that are worth investing in are appreciating right now so it would serve most smart investors to tie up properties (with or without equity) for as little money as possible and hold for appreciation - specifically if the rent will service the debt.

I'm not sure what "anti-guru" means but I will say that investing in my education has resulted in the best ROI over any other investment I have ever made.

And I would never have thought that offering someone thousands of dollars worth of legal documents (when that is what he asked for) for free would ever be misconstrued as an "under the radar" solicitation.  

I thought we were here to help each other.

Thanks for the comments @Bill G.

Next time use red ink when you grade my paper - it makes it easier to learn from.

Stay frosty.

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