Hello! Brand new to Bigger Pockets and real estate investing, so any and all advice is welcome.
One of my friends is about to sell their house, that they've only lived in for a year. They think the house has already gained +15% in value even though they have little equity.
I listened to a Podcast about "subject to" where I basically get the title and take over the payments and I thought this would be an interesting time to try it.
Do you think it's wise to try this? Where can I learn more about the steps to make it successful? What should I watch out for?
Thanks in advance!
I would need to get more details on cost and what it would rent for. But, honestly, it just sounds like an opportunity to lose a friend.
Others on here may be more knowledgeable about these kinds of deals but do be careful because the mortgage documents almost certainly contain a "due on sale" clause which allows the lender to call in the loan upon the borrower's transfer of any interest in the property. It's why some folks may view these deals as shady. More on point, what would you do with the property if you acquired it? Is there any reason you and your friend are unwilling to do a traditional sale and purchase here? Is your point to avoid closing costs or something else?
Goal would be to make it a rental property and avoid closing costs.
One additional hurdle you may want to examine: the lender will require you to carry liability insurance and will require that it be named as an additional insured on the property. Changing the named insured from your friend to you will signal the lender of a change in title which could trigger an inquiry into whether the due on sale clause has been violated. Alternatively, leaving the insurance in your friend's name raises an interesting issue as to whether the insured (your friend) has an insurable interest in the property (and thus has a right to insurance proceeds if the property burns down). People who advocate for these kinds of deals may have an answer to this quandary, but I do not.