Wholesaling a subject to?

15 Replies

I have been getting leads that are super thin for a flip or a wholesale, but for a buy and hold they are not terrible.  I was wondering if there was a angle to sell a subject to deal.  Here is the scenario... The property is worth 130k and has a mortgage of 98k remaining, the monthly payment is 800.  The property will rent for around 1000 bucks.  The owner is willing to do a subject to.  The amount to catch up the mortgage and is about 8000 with attorneys fees.  There will only be minor repairs to be rentable maybe 2000.  Would any investor ever be willing to pay for a deal like this?

I'm not sure but it sounds doable.  I'm gonna put "subject-to" in search box top right, see what other posts have said.  Maybe you should too?

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Originally posted by @Richard C. :

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

Originally posted by @Kenneth Z. :
Originally posted by @Richard C.:

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

 Please explain.  Bear in mind that the OP is in South Carolina, not California, and no one is going to buy a cash flow negative house and bank on appreciation.

Tell me how you can pay $800 principal and interest (or, hell, even $800 for PITI) against $1,000 in rent and make any money. The subject to financing (if it is even possble; it usually is not) doesn't make this profitable. You are looking at a $12,000 cash outlay, plus assignment fee, to buy negative cash flow.

Don't mislead him into think he has a deal here.  He will just end up tying up a property he cannot move, while trashing his credibility with buy-and-hold investors in his area.

I appreciate the information.  I haven't got a contract on this I am just trying to think up creative ways to convert the leads that I am getting.  I have been getting a lot of action on pre foreclosure lists.  But most of the deals have very little equity.  Any advise?  I've also been mailing inheritance but much less action.  Any other ideas on list I should target? 

Originally posted by @Richard C. :
Originally posted by @Kenneth Z.:
Originally posted by @Richard C.:

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

 Please explain.  Bear in mind that the OP is in South Carolina, not California, and no one is going to buy a cash flow negative house and bank on appreciation.

Tell me how you can pay $800 principal and interest (or, hell, even $800 for PITI) against $1,000 in rent and make any money. The subject to financing (if it is even possble; it usually is not) doesn't make this profitable. You are looking at a $12,000 cash outlay, plus assignment fee, to buy negative cash flow.

Don't mislead him into think he has a deal here.  He will just end up tying up a property he cannot move, while trashing his credibility with buy-and-hold investors in his area.

 I guess I should have explained my post a little bit better. I was more advocating for understanding the business model of your investors and what they are willing to accept. 

Originally posted by @Dennis Brody :

I appreciate the information.  I haven't got a contract on this I am just trying to think up creative ways to convert the leads that I am getting.  I have been getting a lot of action on pre foreclosure lists.  But most of the deals have very little equity.  Any advise?  I've also been mailing inheritance but much less action.  Any other ideas on list I should target? 

 I don't have any ideas about lists.  I would just suggest that if you are going to market to landlords, you need to understand what works for them.  I would do a search here for the 2% rule and the 50% rule.  I don't love those "rules" but as a rough rule of thumb, they will give you an idea of what landlords will be looking for.

For example, the 50% rule holds that 50% of schedule rents will need to be dedicated to expenses, EXCLUSIVE of financing costs.  So for your $1,000 rental, about $500 a month will go to taxes, insurance, vacancy, property management, capex and maintenance.

That leaves $500 from which to subtract the principal and interest payment.  What is left is the cash flow, which represents the buyer's return on their investment.

In your example, I will assume that the $800 payment includes an escrow for taxes and insurance.  So maybe $600 is the principal and interest.  $500 - $600 = negative $100 a month.  So you can see why no one would buy it (unless they were in a super-high appreciation market and were essentially speculating on further appreciation.)

On the other hand, if I am a prospective owner-occupant, maybe I am interested. I am getting a $135,000 house for $108,000 plus your assignment fee, plus maybe being able to assume financing I could not get on my own. But even for an owner occupant, that is not really a better deal that they could simply buy off the MLS, without all of the unusual and frankly risky complications involved in the deal you describe.

@Dennis Brody  

Ok you are in S Carolina, ARV is 130K, owes 98K, needs 8000 to cure note,

Costs to sell are 13K with agents fees, closing costs, etc

130 - 98K - 8K - 13K = 11K

Seriously?

You might do a JV with the seller but this is very thin.

Seller gets nothing, you get a $10K fee for the JV

1. Pay $8000 to cure note, Buy sub2, make payments on note

2. List house $130K, closes in 60 days

3. Pay 98K loan bal + 8K back payments + $13K costs to sell + 2K to repair = 121K

4. You make balance, 130K - 121K 

net to you is less due to making PITI payments til resale happens.

Is this property a property someone would want to owner finance? Is it in a good area?  You could do a wrap mortgage. List to Grant Kemps podcast 73.

Yeah its in a nice area.  Thanks for the ideas.

Originally posted by @Kenneth Z. :
Originally posted by @Richard C.:

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

Originally posted by @Randy Fahrenkrog:
Originally posted by @Kenneth Z.:
Originally posted by @Richard C.:

So I have to pay $8,000 in lawyers fees and back mortgage payments, $2,000 in make ready costs, plus closing costs, and assume a $98,000 obligation, plus presumably pay you some sort of assignment fee, to get a house worth $130,000 that rents for $1000 a month?

That is an absolutely terrible deal, for which I would pay nothing.  Sorry if that sounds harsh, but being all-in at $108,000 plus closing costs plus assignment fee for a house that rents for $1000 is a terrible, terrible deal for a buy and hold investor.  I would be losing money every month.  Principal and Interest payments need to be well below 50% of schedule rents for a landlord to make any money.  No investor would touch this.

Unless I am missing something or not understanding your post, which is entirely possible.

Your best bet would be to somehow market it to an owner-occupant, if you can do so without running afoul of brokerage laws.

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

 sounds like a candidate for a lease / option exit to me if you still have the ability to do sobut it of course would need structured well

Our firm would be interested in deals like this. Please PM me and or send a request.

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