Real Estate Consultant · yucaipa, CA · Member since 2008 · 26 posts · 4 votes
17y
All I can say is that the L/O sub2 is the perfect Buy/Sell strategy for today's market or any market for that matter.. An added bonus is that most sellers, especially in today's market are much more flexible to accomodate a longer Option term. I prefer 3-5yr term. Being a Investor/Buyer Agent I also do options for my buyer clients. It's a niche' for me because most realtors have a Retail/Put a sign in the yard and hope for the best mentality. They also want to get paid now. So I tell them that I will educate them a little and also tell them that I will pay them the seller side of the commission out the option money if they refer those clients to me.. They have no reason at that point not to talk to their seller about L/O. I also like the Lease Purchase contract (no-option) for Controlling Land in emerging market areas. Just go to your local city or online and take a look at their master plan. Concentrate on all the Infill land that's already pre zoned for multi units close to town. That's where your small developers are & will be looking to build. Their easy to work with and will also JV with you. Thanks for opening up this post. As you can tell I'm big on L/O and sub2. To create more wealth rollover all your IRA $ into a Solo 401K and use those monies to make the deal Tax Free. Let me know if I can help.
Matt Mathews
Mathews Associates LLc
Retirement Advisor
RE Investment Services
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Congrats on your deal Nick.
No intention of bashing your post, but just to ask and play devil's advocate: What happens if the property value declines more to the point that the value becomes upside down from the mortgage and the LO tenant stops paying? You are now in a position where you have two potential parties to sue you, negative equity position in an arm loan, and no tenant.
Is the deal worth those risks or do you have an iron clad way to prevent the risks mentioned?
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Thats a good question!
I don't mind answering that.
I am very pro-active in making sure my L/O tenants buy the property. All of my L/O tenants are referrals from mtg brokers and buyers agents, so I already know what their situation is and why they are not getting qualified in the first place.
Having said that, they are already warmed up to what it's going to take for them to qualify from those 2 inbound leads. They are required from to enroll and continue to be involved in a credit repair program. Also with clearnow.com it reports their payments to show positive marks on their credit.
I'm not worried about being sued by either party simply b/c I'm a disclosing son of a b...... to everyone. The previous homeowner is glad they are not getting foreclosed and in the sub2 addendum I have them read it out loud while they sign it.
The L/O tenant understands that they are expected to purchase the home within a specific time period.
There is always risk or what if's in investing as we all know, I just try to reduce that risk from the beginning.
Worse case scenario I'll short the second and modify the first
I hope that was somewhat helpful
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Most helpful, thanks for taking the time to answer it so thoroughly. I have heard from several people that most LO tenants do not end up buying the property, but I have only done a few LO contracts so I do not consider myself experienced enough to provide insight on the topic, hence my questions to you.
The short sell/loan mod options are great secondary exit options and I did not even consider them, great point.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Sub2s I average 2-3 a month.
'08 I did 37 sub2's, by no means the highest numbers but I'm not complaining.
go to ahswarranty.com
they are a great investor tool, they provide extended home warranty coverage. They are my answer to not wanting Thieving property management companies.
They charge a few bucks every month (which I make the tenant pay for) and then if something breaks all you need to do is pay the pre-determine service fee (which I also make the tenant pay)
AHS will replace whatever they cannot repair free of charge. Can't beat that
Real Estate Consultant · yucaipa, CA · Member since 2008 · 26 posts · 4 votes
17y
All I can say is that the L/O sub2 is the perfect Buy/Sell strategy for today's market or any market for that matter.. An added bonus is that most sellers, especially in today's market are much more flexible to accomodate a longer Option term. I prefer 3-5yr term. Being a Investor/Buyer Agent I also do options for my buyer clients. It's a niche' for me because most realtors have a Retail/Put a sign in the yard and hope for the best mentality. They also want to get paid now. So I tell them that I will educate them a little and also tell them that I will pay them the seller side of the commission out the option money if they refer those clients to me.. They have no reason at that point not to talk to their seller about L/O. I also like the Lease Purchase contract (no-option) for Controlling Land in emerging market areas. Just go to your local city or online and take a look at their master plan. Concentrate on all the Infill land that's already pre zoned for multi units close to town. That's where your small developers are & will be looking to build. Their easy to work with and will also JV with you. Thanks for opening up this post. As you can tell I'm big on L/O and sub2. To create more wealth rollover all your IRA $ into a Solo 401K and use those monies to make the deal Tax Free. Let me know if I can help.
Matt Mathews
Mathews Associates LLc
Retirement Advisor
RE Investment Services
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Franklin.......I'd like to believe I'm a master at leveraging.......but reality I'm still perfecting the art of having other people bring the leads to me...
Realtors and mtg brokers are my biggest bird dogs......they bring 90% of my deals to me..
I'm able to do so much b/c they bring so many to me that I have a lot of options to chose from...
one of these days real soon, I'll write a really good article about leveraging and post in here on BP. Once you read that you'll understand the method of my madness.
Mr. Mathews, another great post in highlighting L/O's and Sub2's
I'm still a big supporter of SDRP investing!!
If I didn't already have an admin, you my friend would be getting a call!
Real Estate Investor · pottstown, PA · Member since 2008 · 22 posts · 1 vote
17y
Hey Nick,
You spoke about a 2nd Exit Strategy in an earlier post being: "Shorting" the 2nd and Motifiying the 1st, I was under the assumption that you couldn't short a loan unless you were attempting to purchase a property and in this case you would have already owned the property, Right? Meaning, You've already made the deal with the seller and it's now your property since the seller signed the deed over to you, So how is this Exit Strategy Possible? Thanks..SULLY
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Originally posted by Dwight:
All I can say is that the L/O sub2 is the perfect Buy/Sell strategy for today's market or any market for that matter..
I wouldn't say ANY market, although there are many right now. For instance, in areas close to me, homes sell for around $300k, but the rent would only be $2000-$2300 per month. That does not make for a cash flow property on a buy and hold, required on a lease option.
That said, I love the strategy as well and we have market conditions all across the US that this would work in.
Real Estate Investor · Millsboro, DE · Member since 2008 · 480 posts · 26 votes
17y
Wow nick. You really go all out.
I have it revert back to the homeowner if noone buys in X amount of time, on a sandwich. I dont take the deed in delaware, because its too much out of my pocket @ a 3% transfer tax, and its your home, after the deed is recorded. Sandwiches are my favorite way to "take over homes", at this point. nice work.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Originally posted by Anthony Sulecki:
I dont take the deed in delaware, because its too much out of my pocket @ a 3% transfer tax, and its your home, after the deed is recorded. Sandwiches are my favorite way to "take over homes", at this point. nice work.
3% transfer tax would make me want to do sandwiches as well.
note to self..............stay away from Deleware.
Real Estate Investor · Millsboro, DE · Member since 2008 · 480 posts · 26 votes
17y
I HATE coming out of pocket for transfer taxes. 3% is ridiculous, and its nothing more than the state standing there with their hand out, and doing absolutely nothing for their share. Grrr....
Investor · Houston, TX · Member since 2008 · 257 posts · 58 votes
17y
Good Job, I have 32 Homes that I have purchased Subject 2. Howbere I never pay for them I make the seller give me 2-3 months minimum on the sale. Especially in today's market.
Keep it up.
Originally posted by Nick Johnson:
Doing sub2's work even in this market.
countrywide loan ARM @ 6 %
adjust in 11/11
$5,421.04 to bring current
$1,341.05 monthly payment PITI
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Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Well good for you Mike, I always try to get 2-3 months for free, but when you've already got the L/O tenant in place ready there's not reason to not do the deal.
The 1 I got last Thursday, the 1 one I got today, the 1 I have scheduled for tomorrow and the 1 I have scheduled for Thursday all have renters and they are not in default so again there is no need for me to ask for 2-3 months for free, but maybe thats the difference in our markets or my ability to quickly fill the property if they are not already filled
Running count is 4 for March, 2 already scheduled for April and 13 total this year alone, in addition to the 37 of last year. I'm hoping to pass the 100 mark by the end of '09