How to buy property with lease option or subject-to

20 Replies

Hey everyone! First real post here, so here goes. 

I have decided to get into the investing scene very hard this year and would like to start up a discussion on owner finance deals. I am not in a position that I could get a loan, as I have been self employed for two years, sold my business owner finance to a gentleman and have virtually no cash reserves. I am looking into subject-to's, lease option, master lease, or any other potential strategies that might get me into some property. Creative finance. If there are any blog/forum posts that cover this, please let me know. 

     At the moment, I am looking mostly at sub-to deals OR lease options where I could turn around and rent the property for cash-flow, however, I am not averse to any strategy, as long as it is ethical lol.

     Also, if there is anyone in Springfield Missouri that I could offer my energy and motivation to in return for information, I would love to talk with you!

     Thank you in advance!

@Brant Vaught   If you have no cash reserves, then your FIRST item of business is to BUILD YORU CASH RESERVES!! Sub-2 is not really the way to do that, as Sub-2 is really more for residual income, and you need to know what you are doing. 

I'd suggest LO assignments and wholesaling, then get into sub-2 or SLO's or rentals. 

@Brian Gibbons  would agree with me that where you are financially depends on what you should be doing. 

Hey @ John Jackson thank you for the insight! Could you elaborate some more based on that? For instance, are you talking about finding a FSBO ( or distressed property ), or would the MLS and a Realtor be a better way to start finding properties? I have been out looking for some distressed and/or vacant properties around my neighborhood when I jog and there are a couple, and have also found an FSBO.

Also, how would you recommend structuring a deal that with lease option? Flip, wholesale, rent? Should I target single family or multi family?

By the way, I really and truly appreciate you taking the time to reply. 

 

Hey @John Jackson thank you for the insight! Could you elaborate some more based on that? For instance, are you talking about finding a FSBO ( or distressed property ), or would the MLS and a Realtor be a better way to start finding properties? I have been out looking for some distressed and/or vacant properties around my neighborhood when I jog and there are a couple, and have also found an FSBO.

Also, how would you recommend structuring a deal that with lease option? Flip, wholesale, rent? Should I target single family or multi family?

By the way, I really and truly appreciate you taking the time to reply. 

@Brant Vaught  

@John Jackson  

Brant you are undercapitalized at this point to venture into sub 2 deals.. this is the point he is making... The reason

1. deals many times do not go the way you want them to

And here is a for instance. YOu have talked a nice seller into selling sub 2 the seller is still on the loan has good credit but is strapped as well. YOu buy sub too and have no reserves.  YOu then lease option or rent to tenant.. lease optionee defaults or tenant turtles up and now you have no cash flow yet your obligated to pay the sellers mortgage. You do not have the funds to even evict a bad tenant much less keep making payments.. and then of course the tenant or lessee does 5k worth of damage when they leave and you don't have those funds.

So in my mind its highly unethical to enter into a contract with a seller that is rely on a undercapitalized buyer to keep their mortgage paid up and property in good shape. The risk to the seller is self evident the risk to you is you walk with impunity.

Also this is rare but what happens if the note is called for alienation how are you going to pay it off.. Especially in mid west markets were days on market in certain areas are in the multi hundreds to years and properties rarely sell for full ask or full appraisals..

This is the I believe what John was trying to convey to you and you probably have not thought through the what if's for the seller.

From What Wayne Brooks has mentioned a Sub too default in Florida can be a feloney and I think all states should have that law.. there is far to many newbie rookies etc that get into this and totally foul up the poor seller.. this is not only about you the investor trying to leverage into a deal its about a seller being able to sleep at night knowing who they deeded their home too has the credit capacity and character to follow through... I am sure you meet the credit and character you just lack capacity at the moment.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Hello,

I feel for you here.  I do agree with some of the responders here though.  Hard as it is, write out what you have to offer.  Don't get yourself into a situation where you need a life jacket you own self to stay afloat.  Especially if you have a family.  Taking calculated risks are one thing - getting too creative and putting your kids meals in jeopardy is another.

Stick to fundamentals.  Sounds like you could spend some time learning.  Then apply that knowledge.  It may take some time - enjoy the process.  Despite what the midnight shows say - this is not a million dollar in a night business.  You have to be smart,  Don't make promises you can't keep - it'll bite you bad.  And don't get too creative unless YOU can carry the deal al by yourself.  Because that may be just what happens.  You don't want a money pit.

Keep your smarts about you.  Good Luck.

@Brian Gibbons  , @Jay Hinrichs  , @Tony H.  , @Nathan Brooks  , Thank you all for contributing!

I had been doing some more research into subject-to's and most of what I had found backs up what you are all saying. Would lease options be a better path to take then? Or would I still run into an issue with the capital? 

@Brant Vaught  

  if you lease the property with the option to purchase that's fine... and then your thought is to flip the option and make the delta.. is that what your thinking of doing?

I would think the owner would have the right to vette the new person.. and or if you default then the owner can get a judgment against you just like any landlord would do with any tenant that defaulted.

Get a RE license and you can earn as you learn... that's one thought... You will be with other agents that can help you decide what is a good fit for you

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

@Jay Hinrichs  , I am open to most anything after getting the property. I actually am in the process of getting my RE license lol. I had the same idea. 

@Brant Vaught  

  Smart man it has served me well the last 40 years... Its a fabulous industry.. met life long friends and investors along the way... But its not easy .. If you have a background in Sales at all you will be a step ahead of the average agent.  Many top agents do very well for themselves.  NOt sure your area  but there is always one or two agents that make 500 to 1 mil year in commissions.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Jay Hinrichs:

@Brant Vaught 

  if you lease the property with the option to purchase that's fine... and then your thought is to flip the option and make the delta.. is that what your thinking of doing?

Could you elaborate on this a bit by chance? The way I am picturing it is such: Person A has house to sell, person B (me) sets up a lease option for X amount of time, then finds person C to assign the lease option to? Or am I way off base? Sorry I just dont think that I fully understand.. 

And yes my background is in sales. I am one of the odd people that actually prefer 100% commission as opposed to an hourly wage. :D

@Brant Vaught ,

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Raymond

Hi Brant! I'm sort of in a similar situation...  I am unemployed but have retirement and education income benefits.  I want to get started in real estate with no money but the reality is I really need a job first!  I feel it's wise to have at least 3 months of income set aside, initially, before I do my first deal.  In the meantime, I'm educating myself and trying to find the right investing niche so that I can focus on that.

  Once I've done a few deals in the niche I've chosen and feel comfortable with my  skills I believe I'll be ready to tackle the next niche, whatever that may be.  Anyway, good luck!  I wish you much success in your investing endeavors.

Dwight W., Diversified Housing Solutions, LLC | [email protected] | 4077083566 | https://www.facebook.com/diversifiedhousing

ok, here goes. you have no cash reserves. you need to boost your cash reserves. you need to do a couple of quick flips to put some cash in your pockets. with little money to work with, you need to buy as cheap as you can, and sell for profit. tax foreclosure sales are best. sometimes you can pick these places up for next to nothing. do your home work, though. make sure you can make money on it. i have bought some for as little as $200. then you quick flip it for say $5000. you make money, the buyer gets a good deal, everyone walks away happy and you are building your cash reserves

@Dwight W.  , have you ever had an issue with the person who was foreclosed on due to taxes bringing them current? It was my understanding that if your property has been sold on taxes (sheriffs sale) that the owner had two years to bring them current and could reclaim the property? Might not be an issue with buy and hold as you would get your money back (tacked on the the amount that they had to pay to bring it current) but what about the end buyer? Or am I missing a step? 

hi brant. here in new york, the previous owner does have one year to redeme their property, but once it has gone to tax sale, they have to pay YOU, the buyer the taxes and interest on the amount. they cannot go into city or county hall and just pay the taxes after the sale. no, i personally have not had anyone redeem their property after i have bought it at sale. i am sure some people have had that happen. i have seen people show up at the sale and redeem them just prior to the sale and i have seen one person consult with the buyer right at the auction and ask if they could come to terms with him to keep their property. basically, the tax sale is pretty full proof, not a lot of issues. 

I understand what people are saying about building up some capital first.

But, if you structure the upfront of a Lease Option or Subject 2  properly then you can build your reserves and get an income.

I get between $5,000 to $10,000 from the tenant buyer at the time of signing. I tell the owner that I use that to  mitigate my risk and I keep it.

Do 2 or 3 of these and you should enough to offset any risk.