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Audra Berger
Pro Member
  • Real Estate Agent
  • Chandler, AZ
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Would it be crazy to do a subject-to deal on an house underwater?

Audra Berger
Pro Member
  • Real Estate Agent
  • Chandler, AZ
Posted May 29 2020, 15:26

Scenario -

Sellers bought house in highly desirable neighborhood in Phoenix, AZ at peak of last crash.
They still owe $650K. The home is worth between $595-610K. ARV could be right around $650K. Home is 5 bedroom.

Sellers currently live out of state and have tried to make this work with rentals, air bnb, etc. But have not managed well, and this second mortgage is a major stressor in their lives.

They did a loan modification in the past so they actually have a very low mortgage payment given the size of the debt at $1900. They are currently renting it ($2200) way under what it could rent ($2700-3000).

Would it be crazy to offer a subject-to for a fully furnished home, have them cover closing, and be into a $600K house with no money out of pocket even though it is under water $40-50K?

Pro's - (1) No money out of pocket and we have money in reserve to cover vacancy and do repairs. (2) It is in one of the best neighborhoods in the area. (3) The mortgage payment is low enough that it can cash flow just fine. (3) We can aggressively pay down the debt with cash flow. (4) Would there be tax advantages?

Con's - (1) Your obviously starting out WAY underwater, (2) the house is not the sweet spot for renting given its size and price range, (3) uncertainty about rent and homes value given the circumstances.

I would appreciate any expert advice. This would really help the seller, and viewed long-term, could be profitable especially with no money up front.

  • 602-402-4310

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