Subject to and being underwater

8 Replies

I have a guy who is willing to let me take over 2 properties 'subject to' the existing financing. They are rented  out and he is just tired of dealing with tenants. The problem is that he owes more than market value on both properties. One is $100 below market rent, the other is $50 above market rent. I would want to get property management in as well to take care of the day to day. So total cash flow per month would be $60. So the deal is that I never want to pass on an opportunity but I am having a hard time finding the opportunity. I am hoping someone can shed some light on a creative way to take over these properties and make it work. If anyone has any ideas or proven strategies please let me know.

Originally posted by @Drew Poniewaz :

I have a guy who is willing to let me take over 2 properties 'subject to' the existing financing. They are rented  out and he is just tired of dealing with tenants. The problem is that he owes more than market value on both properties. One is $100 below market rent, the other is $50 above market rent. I would want to get property management in as well to take care of the day to day. So total cash flow per month would be $60. So the deal is that I never want to pass on an opportunity but I am having a hard time finding the opportunity. I am hoping someone can shed some light on a creative way to take over these properties and make it work. If anyone has any ideas or proven strategies please let me know.

 What are you gonna do if the bank forecloses?

@Drew Poniewaz I'm surprised no one offered any useful thoughts. Depending on how much underwater we're talking, my first instinct would be to find out if the existing tenants are interested in buying, if they are I'd finance them. Then you don't need a property manager and you should be able to get enough cash flow to make it worth your while.

@James Wise The bank won't foreclose if the loan is being paid.

Originally posted by @Doug Pretorius :

@Drew Poniewaz I'm surprised no one offered any useful thoughts. Depending on how much underwater we're talking, my first instinct would be to find out if the existing tenants are interested in buying, if they are I'd finance them. Then you don't need a property manager and you should be able to get enough cash flow to make it worth your while.

@James Wise The bank won't foreclose if the loan is being paid.

 That is speculation. Not fact. If it was fact there would not be a "due on sale" clause in the mortgage.

@Doug Pretorius I hadn't thought about asking the tenants to buy with seller finance. Is this something you have done? I didn't know what the existing owner would think about me talking to the tenants before we "close". I would have to be worried they would say no and then have to go back to the owner and say I don't want the deal.

@James Wise from what I have researched, banks won't start the foreclosure process if they are being paid and don't feel the need. I guess worse case scenario is that is that I give the property back to the original owner. Thanks for the thoughts.

@James Wise Yes, they may call the loan due, they won't foreclose unless you refuse to pay the loan off. I wanted to point out that these are two different things, because the solutions are different.

@Drew Poniewaz Yeah usually I just go ahead and buy the property and ask the tenants afterwards. I can tell you from experience that the answer from the tenant is almost always yes. It's more a question of whether or not they're financially able.

Are the tenants under lease? If not, you could put the properties under contract conditional on approving the tenants. Most buyers want vacant possession after all.

Originally posted by :

Yes, they may call the loan due, they won't foreclose unless you refuse to pay the loan off. I wanted to point out that these are two different things, because the solutions are different.

The issue is that the majority of folks interested in purchasing properties subject to are unable to pay the loan off if need be.

Originally posted by @James Wise :
The issue is that the majority of folks interested in purchasing properties subject to are unable to pay the loan off if need be.

Well then they can call you and you'll mentor them on how to bring a partner in to refinance the loan. Problem solved! :)

Based on those numbers, it appears acquiring them through a short sale if possible would make the most sense. Too underwater and no cash flow based on what you are saying. If I could take a home subject to for dirt cheap that was underwater but it cash flowed very well, I would consider that as an option.

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!