What constitutes good Subject-to Criteria

Question

Hello BP friends,

I understand what a subject-2 transaction is, but what is the criteria/situational benchmarks you look for when deciding this is a good strategy for the subject property?  Low equity, newer homes, foreclosure etc?

Kumar Tummalapalli · Answer

That's great ...Realtor fee is kind of straightforward - but what specifically would you tell on holding csts- like property taxes+mortgage? or something else..aswell

Account Closed · Answer

Hi Lawrence, I do Subject To in S.A. and all the way up to Dallas. I look for motivated sellers who need or want to move quickly. Usually people who don't want to go through the MLS and do showings and deal with real estate agents and have all sorts of people walking around their property . Just telling it like it is. ;-) Some times the properties need repairs and sometimes not. Most of my finds are "off market" but I pay a finders fee for the right deal.

I have done deals in several states and on homes built in 1900 in nice neighborhoods to 1950's in crappy neighborhoods to built in 2015 in small towns. Most have low equity but a few have been over leveraged and some had $200,000 equity in them in nice neighborhoods when $200,000 meant something. Yes, I got that equity. I gave some equity (cash) to the seller and I kept the rest of the equity. Then I financed the equity. Since borrowed money isn't taxed, it is "tax free" to me when I get the check. Then I put someone in who can carry the payment as a Lease Option taking an Option payment from them (usually $15k to $25k) and cash flow the property. It works for me. ;-)

I don't know if any of this helps but the one thing I do on every transaction is show people what they walk away with if they use a real estate agent and pay those fees and carrying cost, versus that I don't charge fees and I take over the costs immediately with a flexible move date for them. It can actually save them quite a bit of money and hassle and even be the difference of being able to do the deal at all.

Account Closed · Answer

Sub2 deals have been my main nitch , although I have done some wholesaling simplify because some houses fit that model. It seemed that this method is not promoted by and large on Bigger Pockets, due to some investors giving this method a bad rap due to misuse. If you can cash flow and build up equity at the same time that looks a lot like a good fit.

Derek Dombeck · Answer

You need to do a cash flow analysis regardless if it is bought subject to or financed any other way. If it meets your cash flow goals, go for it. I like taking subject to when the note is at least 7 plus years old. You start to gain some nice principal reductions each month. I also like to lease option these houses to maximize income and minimize management.

Happy Investing

Doug P. · Answer

@Lawrence Rutkowski Pretty much all I've done for the last 20 years is take over payments, not necessarily sub2, but close enough. I've been surprised so many times by sellers and what they will agree to that I realized any pre-qualifying of leads on my part probably eliminates as many deals as it does non-deals.

My only criteria now are:

1. Will the seller sell to me for little or not money out of pocket?

2. Is the mortgage worth taking over?

Tim G. · Answer

A seller who doesn't want to list with an agent, owes less or near equal to the amount you want to pay, and a problem you can solve in exchange for taking over their mortgage.