Need DFW Investor advice on Subject To deal!

18 Replies

I'm looking at possibly doing my first Subject To deal and need some input on this deal. This is very preliminary so please bare with me. The house is a 3 bed 2 bath 2300 sqft typical tract home in Arlington, TX. Needs some work but I haven't looked at it yet to assess just how much. Let's assume $2,000-$3,000. The mortgage balance is $80k but the monthly payments are supposedly under $500/mo. I can possibly rent this out anywhere from $900-$1200. The problem is that the market value for this home could probably only be about $90-$95k. Even the county property tax values have dropped for homes in this zip code($85k for this house). Is this a bad sign that the area is declining? (my personal residence taxable value in Fort Worth just went up) The monthly cash flow could be very nice IF it rents quickly. We are coming into a season that's harder to get houses rented out obviously. Several questions I have are:

What are the costs to do the Subject To deal including attorney fee for contract, filing fee, recording fee, etc?

Is this deal even worth doing without much spread between purchase price and market value?

Where can I get a copy of a Subject to contract?

I would really love to speak with another experienced local investor on the phone about this. If anyone could find the time to speak with me, please message me your phone number or just reply here.

Thanks in advance for any advice!

Daniel

I don't think the cost would be that much, but you need to put in the subject two contract that the lender could call the note due and just be honest with the seller and if the lender calls the note due do you have the funds to pay the home off, or you just walk away and let the lender foreclose on the seller.


Joe Gore

Probably best to seek legal advice on structuring the deal, etc.

There are some good attorneys in DFW that focus on Sub 2 transactions

and some Texas Property code rules to follow.

Be glad to PM you a referral if needed,

@Daniel Robbins  

Arlington is getting as bad as Dallas in terms of really good areas & really bad ones.  I guess that's to be expected as large as it's gotten.

Can you give me a better feel for where in Arlington the property is?  There are areas of Arlington I personally wouldn't touch, just because I think you're going to see continued decline in the neighborhoods & schools, which will lead to a decline in rental rates.

As for the Sub2 stuff, I have contracts & disclosures. I do recommend you at least speak with an attorney, but I would be happy to share the docs with you just so you can get a feel for the wording, etc. If so, shoot me an email or PM me.

Hattie

Originally posted by @Tyler H.:

Probably best to seek legal advice on structuring the deal, etc.

There are some good attorneys in DFW that focus on Sub 2 transactions

and some Texas Property code rules to follow.

Be glad to PM you a referral if needed,

 Yes please PM that referral @Tyler H. Thanks!

Originally posted by @Joe Gore:

I don't think the cost would be that much, but you need to put in the subject two contract that the lender could call the note due and just be honest with the seller and if the lender calls the note due do you have the funds to pay the home off, or you just walk away and let the lender foreclose on the seller.


Joe Gore

 I did tell the seller about the due on sale clause. I always want to be completely honest. I do not have that kind of cash on hand to pay the home off. Does everyone who does sub2 deals have that kind of cash on hand just in case? I would assume not.

@Daniel Robbins,

Just put it in your subject two contracts so at a later date the seller cannot say you never told him because it is in writing. If you are doing the subject 2 to rent out and the seller files a bankruptcy, then you need to deal with the renters and find them a place for them these are just things that you could be faced with I hope not.


Joe Gore

@Joe 

@Joe Gore

 Thanks for the tips. I certainly want to make sure all my bases are covered. They actually called their attorney to ask about doing a sub2 on the house and it sounds like he made them feel okay about doing it.

That is great let the sellers lawyer draw up the subject two contract.


Joe Gore

@Joe Gore

Seriously? You wouldn't be worried about something being slipped in there out of client partiality?

@Daniel Robbins,

As long as you can read and agree or disagree it would not be a problem. Here where I see your problem when their lawyer says the seller want $5000 non refunded deposit in order to do the subject 2 which is fair because the seller is taking a chance on you making the payments.


Joe Gore

@Joe Gore 

Exactly. I'd rather be the one driving and if they want to have their attorney look at it, that's fine. This is my first attempt at a sub2 deal so I already feel like there's enough risk involved without me having to come up with a chunk of cash for a deposit up front. The seller already asked me what happens if I don't pay since the loan will stay in her name and I let her know that I would put a special clause in the contract that said if I was late 30 or 60 days depending on what we agreed upon, that I basically lose all that I've put into fixing the place up and equity and she gets the house back. She seemed comfortable with that.

So you want to get in the deal with no out of pocket money, and you say 30 or 60 days late, and if she has a mortgage, then she will be late paying, and if she asks her lawyer about the subject 2, you can bet he will tell her she has more to lose, then you might want to sweet the pie with at least 3 or four months of upfront payments.


Joe Gore

@Joe Gore

If I were to do the deal, I wouldn't be opposed to that. That sounds somewhat fair but obviously the less out of pocket the better, since there will be repair costs as well. 

Thanks for the input.

@Daniel Robbins do not offer her any money up front. If she sold on MLS she would have to come to closing with a check. You are offering her debt relief. When I deal with sub2 clients I let them know that we are both entrusting in one another. I take it one step further and show them why they can trust me with references, bank statements and a fico score.

Best of Luck 

@Rocky Vasquez,

When you say trust and now they trusted you on a subject two deal, and the lender calls the note due are you going to come to the table and cash out the bank or let them foreclose on the seller who trusted you without one red cent in the deal are you going to pack up and move on to the next deal or cash out the lender.


Joe Gore

@Joe Gore Just because I do not offer them any upfront money does not mean I have nothing in the transaction. The majority of deals I have done I have had to make major repairs and even back payments. I give all my clients options: cash offer, list on MLS, short sale, even manage property for them. Many of them do not want to deal with tenants and live pay check to pay check so they can not afford to make major repairs. I have yet to have a lender call the note due when they are receiving payments automatically from my bank account. I do have the means to deal with it if it was to arise.

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