Should I do this Subject to deal?

3 Replies

Hi BP - just looking for some assistance as I continue my REI journey.

I have a Sub - 2 deal lined up and the homeowner is very interested. Here's the situation...

1. ARV is $155k - (Needs a new roof in a couple of years and HVAC)

2. Owes $124k

3. Mortgage - p.i.t.i. $1,300

4. Pre-forclosure - Behind 4 months of payments 

5. Wants $0 down (She just needs to get rid of it asap)

My plan is to take over her property Sub-2 then sell it on a lease purchase for $165k. Rent $1,450 to Tenant / Buyer with a $7k to $10k option consideration fee. 

Is this a good deal? Is this the correct strategy to use? Any and all information and suggestions would be helpful. 

Thank you in advance! 

Originally posted by @Christopher Dorsey :

Hi BP - just looking for some assistance as I continue my REI journey.

I have a Sub - 2 deal lined up and the homeowner is very interested. Here's the situation...

1. ARV is $155k - (Needs a new roof in a couple of years and HVAC)

2. Owes $124k

3. Mortgage - p.i.t.i. $1,300

4. Pre-forclosure - Behind 4 months of payments 

5. Wants $0 down (She just needs to get rid of it asap)

My plan is to take over her property Sub-2 then sell it on a lease purchase for $165k. Rent $1,450 to Tenant / Buyer with a $7k to $10k option consideration fee. 

Is this a good deal? Is this the correct strategy to use? Any and all information and suggestions would be helpful. 

Thank you in advance! 

 I might do the deal. I'd get $10k down on this one or even $15k

Does the $124k include the arrears? My experience is that people underestimate their reinstatement amount so have her request a reinstatement amount that is good for 30 days from now. If they say they can't because the sale date is sooner, that is a different problem. If they say they will provide one, add that amount to the principal amount on the most recent statement. There are late fees, legal fees and pre-foreclosure costs that have to taken into account. 

ARV (After Repair Value) implies the house is in good shape. The two things that are a little dicey are the roof and the HVAC. Each could be $5,000 or more to replace. If the roof is compromised already, you might have rot and mold particularly in places hard to get to. If the HAVC stops working it will be hard to sell since it is summer.

Keep in mind that you are making the mortgage payment on the property while you are looking for a buyer. I'd strongly suggest you plan on that taking two or three months. If it sells faster, all the better. Your carrying costs include mortgage, property tax, insurance, electricity, water, garbage, HVAC since it's summer and any HOA if applicable.

Get a Prelim Title report $50 to $60 in most places. Not full Title Insurance. You just need to know if there are other liens on the property or other owners that haven't been mentioned. If it is an FHA loan you have a title problem taking it Subject To, but that can be worked out. Since it's a foreclosure, I strongly suggest using an attorney to do the closing. Don't do a "table top" closing.

And of course once the bank learns that you are taking over the loan they can enforce the Due on Sale clause. They probably won't call the loan due. However, the way to approach the deal is to have your LLC write a check to bring the loan current. Wait for confirmation (30 days or so) and once the loan is out of the foreclosure department record the deed into your LLC. They can still call the loan due if they choose to but it is not common.

What is the home worth as is?

How much work to get it to 155k?

If you think you can do sub-2 / reinstate and sell for a profit then you can attempt that route. This is a great route at times too.

I'd rather purchase it as a short sale if I felt that I could get in /w a more equitable posistion. This would depend on it's current as-is value. Seems like it's a wobbler ( as-is value vs what is owed ) based on what you are saying?