Subject 2 deal in Houston TX. Need a way to make this work.

Real Estate Deal Analysis & Advice
11yFollow

Subject 2 deal in Houston TX. Need a way to make this work.

Geoffrey Jones
Flushing, NY · Member since 2013 · 221 posts · 29 votes

I have a another beautiful home under contract for a Sub To Agreement. My Purchase price is the remainder of the mortgage. The house is only 8 months old. Needs no repairs. Mortgage + Insurance payments are $930 month. Rental for this unit is 1400 - 1500. Owner moved to another state 8 months after buying it. Why?  Homeowner lost his job after a few months and missed his payment in August.  He claims he made the payment to the bank for August, but then missed the payment for September. He wanted to live near family so moved back to his hometown. Home is now in distress.

He called his bank and negotiated a payment arrangement in September and spread his September payment through October, November and December. 

We are now at the title company ready to close at the end of the month. Bad timing? Yes! Cause the mortgage payment is again due on the 1st of the month and when ordering a final payoff amount from the bank they now see that the property is $1800 in arrears. Owner is claiming he made the payment  in August but it takes time for it to show up at his lender. 

I need help from my buddies here on BP. What should I do here? 

1. Part of me wants to be a good Samaritan and pay the remaining balance.

2. The Money maker in me tells me to make sure he pays up what he owes so I can get closer to a no money down deal.

I don't want this to threaten the deal as I know this will help him out and prevent him from defaulting and also I will gain access to a very nice property with 400 - 500 income potential a month.

So lets hear it fellas who should I listen to . The good Samaritan or the money maker. If you have some advice in between please share it.

0Reply
20 views

Most Popular Reply

Brianna H.
Investor · Katy, TX · Member since 2015 · 112 posts · 24 votes
11y
Originally posted by @Geoffrey Jones:

Here's the financials

ARV $160000+ I assume property values will increase over the next 1-2 years
Current Loan 142,000  Amortorized over 30 years @ 3.2%
Repairs $0
Mortgage & Insurance 930/month

I planed to cancel the existing insurance and put my own in place at a much cheaper price. It will bring my mortgage payments down to 800/Month

Taxes 580/Year

Cash flow opportunities

Potential Rent 1500
Potential Lease Option 1700 + 15000 down with $200 option money

 I can't wrap my mind around taxes on a $160k house being $600/year. That's 0.4%. I am assuming that since this is a new house, taxes are just on the land and you are in for a rude awakening next year. Just my two cents. This doesn't seem like a good deal at all.

Just FYI...taxes in Texas, from my experience, are typically around 2.5%. This would be about $350/month.

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Chance Housos
    Investor · Sachse, TX · Member since 2015 · 223 posts · 66 votes
    11y

    if it would only cost me 1800+closing to get into a potential 4-500 cash flow, I would just pony up. Did you not get a limited POA and find out for yourself?

    0Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    11y

    It seems like you're counting profit simply by taking the monthly rental of $1500 and subtracting the $930. Does that $930 even include the taxes portion of PITI because you only mention mortgage+insurance? And I don't see anything in there for any other expenses.

    Going off the 50% rule, with a monthly rental of $1500 you should expect roughly $750 in expenses. That only leaves $750 to pay for your mortgage. Unless the insurance part of the $930 is $180 a month, there won't be enough left over in that $750 to cover your mortgage. Which means not only you have no cash flow but you would be negative.

    0Reply
  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
    11y

    Here's the financials

    ARV $160000+ I assume property values will increase over the next 1-2 years
    Current Loan 142,000  Amortorized over 30 years @ 3.2%
    Repairs $0
    Mortgage & Insurance 930/month

    I planed to cancel the existing insurance and put my own in place at a much cheaper price. It will bring my mortgage payments down to 800/Month

    Taxes 580/Year

    Cash flow opportunities

    Potential Rent 1500
    Potential Lease Option 1700 + 15000 down with $200 option money

    0Reply
  • Brianna H.
    Investor · Katy, TX · Member since 2015 · 112 posts · 24 votes
    11y
    Originally posted by @Geoffrey Jones:

    Here's the financials

    ARV $160000+ I assume property values will increase over the next 1-2 years
    Current Loan 142,000  Amortorized over 30 years @ 3.2%
    Repairs $0
    Mortgage & Insurance 930/month

    I planed to cancel the existing insurance and put my own in place at a much cheaper price. It will bring my mortgage payments down to 800/Month

    Taxes 580/Year

    Cash flow opportunities

    Potential Rent 1500
    Potential Lease Option 1700 + 15000 down with $200 option money

     I can't wrap my mind around taxes on a $160k house being $600/year. That's 0.4%. I am assuming that since this is a new house, taxes are just on the land and you are in for a rude awakening next year. Just my two cents. This doesn't seem like a good deal at all.

    Just FYI...taxes in Texas, from my experience, are typically around 2.5%. This would be about $350/month.

    1Reply
  • Justin Long
    Rosenberg, TX · Member since 2014 · 25 posts · 6 votes
    11y
    Originally posted by @Geoffrey Jones:

    Here's the financials

    ARV $160000+ I assume property values will increase over the next 1-2 years
    Current Loan 142,000  Amortorized over 30 years @ 3.2%
    Repairs $0
    Mortgage & Insurance 930/month

    I planed to cancel the existing insurance and put my own in place at a much cheaper price. It will bring my mortgage payments down to 800/Month

    Taxes 580/Year

    Cash flow opportunities

    Potential Rent 1500
    Potential Lease Option 1700 + 15000 down with $200 option money

     You are way off on taxes and insurance is going to be ~$1k per year. 

    This does not look like a deal at all to me when considering cap expenses, other expenses, property management, etc.

    0Reply
  • Justin Long
    Rosenberg, TX · Member since 2014 · 25 posts · 6 votes
    11y
    Originally posted by @Justin Long:
    Originally posted by @Geoffrey Jones:

    Here's the financials

    ARV $160000+ I assume property values will increase over the next 1-2 years
    Current Loan 142,000  Amortorized over 30 years @ 3.2%
    Repairs $0
    Mortgage & Insurance 930/month

    I planed to cancel the existing insurance and put my own in place at a much cheaper price. It will bring my mortgage payments down to 800/Month

    Taxes 580/Year

    Cash flow opportunities

    Potential Rent 1500
    Potential Lease Option 1700 + 15000 down with $200 option money

     You are way off on taxes and insurance is going to be ~$1k per year. 

    This does not look like a deal at all to me when considering cap expenses, other expenses, property management, etc.

     The taxes you quoted are on the raw land. After the new year the new taxes will kick in for land + dwelling. They are going to be 2.5-3%. 

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Chance Housos:

    if it would only cost me 1800+closing to get into a potential 4-500 cash flow, I would just pony up. Did you not get a limited POA and find out for yourself?

    Actually that $400-500 a month will most likely go to property taxes.

    0Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    11y

    @Geoffrey Jones

    In a subject to deal you don't replace the insurance, you got yourself as an additionally insured on owners policy so the policy doesn't change, it's a red flag to the lender, and then lender may find that the title has changed, then the bank calls the loan due and payable.

    People that do subject to that are completely broke and have not had training in subject to are asking for trouble

    A rule of thumb for subject to this have 3 to 6 months expenses in the bank for PITI and maintenance

    And have a credit or have the cash to have a solution if the loan gets called

    A perfect place for subject to is where you buy a house that needs to be fixed and flipped and you only have title for short time

    It is not for long-term buy-and-hold

    0Reply
  • Chance Housos
    Investor · Sachse, TX · Member since 2015 · 223 posts · 66 votes
    11y

    I was mistaken with my last comment, I was under the impression the taxes were involved in the mortgage. My taxes are 2.8% so you are looking at 3-400 more a month just in taxes. That makes this deal a no go for me.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free