Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
Do you guys usually keep subject to's for rental properties and just wholesale other deals? If I were to wholesale it how would I determine the price to sell it for to investors?
Real Estate Consultant · Seattle , WA · Member since 2008 · 53 posts · 4 votes
17y
I usually wholesale subject-to's. Most of the time they are easiest to sell since the buyer generally doesn't have to worry about financing or having enough cash to buy. If you are able to cash flow quite a bit and there is lots of equity I would suggest keeping it yourself though.
To determine what to wholesale it at, I just basically do what I do with any other property and base it off comps and repairs needed. I just add my fee on and have the buyer put down that and any amount of payments the owner is behind on (and if they have tons of equity and are getting something out of it, their money too).
You should find that if the price is right (and maybe even a little higher than most deals because of the terms) subject-to's and anything with owner financing will be the easiest to get rid of.
Real Estate Investor · Vero Beach, FL · Member since 2008 · 268 posts · 89 votes
17y
Hey if it works then great. I just prefer to use options. If it is a deal I am taking down then I do use a PSA. But if its a deal that I am iffy on that I want to shop around then Option them.
Real Estate Consultant · Savannah, GA · Member since 2009 · 69 posts · 3 votes
17y
Originally posted by Andrew Massaro:
I've never done one myself, but have coached individuals in flipping sub-2's.
How can you coach someone on doing something you've never done?
I understand coaches get paid big bucks to teach something they know, and are experts at doing. I know most coaches don't currently do what they are teaching, but they have actually done some of the deals in the past or have set up and trained staff to operate a business doing what they teach. If you don't have to have personal experience, how can I become a coach? Seriously.
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
17y
I'm guessing that the reason reason you'd use a non-exclusive option contract would be because the owner simply won't sign an exclusive one because they want to be able to market the home too right?
Flipper/Rehabber · Tampa, FL · Member since 2008 · 403 posts · 109 votes
17y
When I was wholesaling, I strictly contracted and assigned. When I first began coaching, that is what I taught. However, to add more value to my students, and my program, I constantly try to learn other ways of flipping houses.
I attend seminars and workshops several times a year, with some of the top wholesalers and wholesale coaches, from around the country. I personally know manhy of them - Preston Ely, Tim Mai, Cris Chico, Colin Egbert Andrews, Andy Proper, etc, etc. I pick their brains and see if they are doing things successfully, that maybe I am not. If so, I learn as much as I can, teach it to my students and see if we can't cash in.
I am still very targeted. I don't do any REO's, short sales or rehab work whatsoever. I stick to what I know, which is flipping single and multi-family houses in low income neighborhoods. However, if I can add a new wrinkle in, and provide another way for my students to make money, while remaining true to what I do, then I absolutely try to learn all that I can about it.
Your super bowl winning coach didn't play every position on the field during his playing days. But through teaching and experience, he has learned ways to get results from his team...
Real Estate Consultant · Savannah, GA · Member since 2009 · 69 posts · 3 votes
17y
You are one of the few coaches that I've heard of going and consulting with other coaches. I must have come across some of the less diligent ones. You seem to know what you are talking about, where some of these guys, well you won't find them helping on forums.
I guess I need to keep learning and keep doing the presentations, until I can come up with a study guide.
I think I might go to doing the investing then teaching the mitigation side.
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
17y
You guys seem to both use the non-exclusive flex option. What phrase do you have in there that protects you in case both you and the seller find a buyer at the same time?
What kind of objections might a seller have to a non-exclusive option and how would you overcome it?
What do you say if they say they were thinking of listing w/ a realtor?
Real Estate Investor · Vero Beach, FL · Member since 2008 · 268 posts · 89 votes
17y
Not a huge fan of Non Exclusive agreements and for some reason I cannot seem to find the language on my hard drive. But I remember it saying that it was 1st right of refusal.
To me a non exclusive looks more like a listing agreement.
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
17y
It means that you have an option to buy the house, and sell that option to someone else if you find a buyer, and it also means that the sellers can continue to market their property. So in effect you are in a race with the sellers to see who can sell it faster.
Real Estate Investor · pottstown, PA · Member since 2008 · 22 posts · 1 vote
17y
Jeff,
I was under the assumtion that what your talking about is a Non-Exclusive Option Contract. What does the "FLEX" part mean or is it the same as a Non-Exclusive Option?
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Originally posted by Jeff Fairchild:
Do you guys usually keep subject to's for rental properties and just wholesale other deals? If I were to wholesale it how would I determine the price to sell it for to investors?
Wow, I dunno how I missed this conversation, which seemed to get a little side tracked.
Assigning a Sub2 deal is the easiest thing in the world, I typically keep my Sub's but have and will assign some of them for quick(er) cash....
I wholesale @ 20% of projected profits, for instance I'm working on putting a Sub2 deal now, I'm working on getting it at 96k. It's worth 140k, I already have a potential L/O tenant for the property with $350 a month cashflow.
Taking the difference of 140k - 96k x's 20% = $8800 assignment fee.
Now if I do that after 6 months I've cashed out accordingly:
7k = option consideration
2,100 = 6x$350 cashflow
8,800 = assignment
17,900 = profit................not bad for an easy to execute strategy on a property I never took a mortgage on.
I'm actually writing a chronological article named "The beginning of a Sub to deal" that I'll post here on BP once I close the deal, and it will be updated as soon as I wholesale the deal. The article will go into depth with exact numbers.
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
17y
Sully,
Yes, the flex phrase is just marketing hype, it is the same thing.
Nick,
I'm not sure how you are getting away with keeping the option consideration (down payment money) and including it in your profit. How are you convincing the person you're assigning to to allow you to hold on to that 7k for the next 6 months to 2.5 years depending on how long the contract is until you find out whether you'll have to hand it back over to the buyer of the property as his down payment?
Real Estate Investor · OH · Member since 2008 · 194 posts · 89 votes
17y
Jeff,
You are misunderstanding what Nick is saying. That 7k is your money. This is how I see it. Nick has the home subject to the original seller. Has puts in a L/O buyer who gives him the 7k option considerations plus some cash flow. Somewhere down the line, someone decides to buy this home, whether they found Nick on their own or whether he advertised it (the former more likely because I would want some cash to walk away from this very good deal for me) isn’t really relevant. So another investor comes along and gives Nick 8800 to assign him his original deal with the original seller (which is a good subject to deal, assuming Nick just didn’t make up these numbers but again for illustrative purposes, it doesn’t matter). Now Nick is out of the deal. Now Nick has to pay taxes on that 7k option consideration because he is out of the deal now.
The investor who bought it from Nick gets an asset for his 8800 dollar investment. This investment nets the new investor a home with a 96k mortgage on it (subject to from the original seller) and 350 month cash flow for his 8800 money down. So in effect, the new investor “owes†or has tied up 96k + 8800=104,800 into a property worth 140k. This investor has no idea what deal Nick has worked out with the original seller and really doesn’t care. You could him some money as a security deposit but that is all I would be giving up at most. He is buying an asset that meets his needs and inheriting a performing tenant buyer. Everyone wins.
I hope that makes sense. I am sure Nick will be along to verify or refute this as the case may be. But this is how I would handle it.
Generally speaking, I wouldn’t have wholesaled a good subject to deal unless something came up where I needed the money for something. That could be another deal I needed cash for and didn’t have, a killer vacation deal that just came available, or maybe a toy of some kind (home theater, spa in the backyard, motorcycle or whatever). But that is what makes this a great business. There are many ways and reasons to do things based on your goals and your particular needs at the present time.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Mike C............Another great post!!
you are exactly right.
Those numbers are actually pretty close, there is another member of BP that can verify that as I allowed him to listen in on the call with the seller, its up to him if he wants to speak up and validate.
here are the actual numbers:
1st = 95,770 @ 6% and $789 w/ PITI
2nd = 17,289 @ 8% and $172
total of $113,059.00 and $961 a month PITI
Low comps are at $140k range, high range is $160k
I'm not greedy so I'll work off the low range.
I'm working on getting the seller to handle the 2nd herself and just Subbing the 1st.....(Ask for the moon, and take what works)
L/O tenant who is willing to come in at 5% down(option money) and $1300 a month. She is currently paying $1200 for an apartment and wants to move up into a house :mrgreen:
Best case scenario $511 a month cashflow with $44,230 in equity that will get wholesaled at 20% = $8,846 equaling a total of $18,912 after 6 months.
worse case scenario(if I can't get the seller to cover the 2nd) $339 a month cashflow with $26,941 in equity that will get wholesaled at 20% = $5,388 equaling a total of $14,422 after 6 months.
Now to the reason why I would wholesale this deal, it's simply b/c this property is in TN and I'm in AZ.
I only wholesale my Sub's that are out of state.
Again, once I'm done with this deal I will write an article with all the exact details.
Real Estate Investor · Vancouver, WA · Member since 2008 · 387 posts · 8 votes
17y
So I guess the answer to my question is.....it's such a great deal for the buyer of your deal that you are telling them "yes, there was a $7k option fee that I accepted, and no I'm not going to give that money to you even though ordinarily when a landlord sells another landlord a house with a renter he does hand over the security deposit and last months rent (unless I'm wrong about that). And the reason that I'm not going to give you that 7k is simply because I could find any other investor in the world who would be willing to take this deal because you're going to make so much money from it."
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
I was not on the call, but discussed it with Nick today and he is a no nonsense guy who gets deals done.
Originally posted by Jeff:
So I guess the answer to my question is.....it's such a great deal for the buyer of your deal that you are telling them "yes, there was a $7k option fee that I accepted, and no I'm not going to give that money to you even though ordinarily when a landlord sells another landlord a house with a renter he does hand over the security deposit and last months rent
Jeff, option to purchase money is not rental deposit money or last months rent. They are two seperate things. The option money is Nick's (in this case) and if he collected a security deposit, then of course that is passed onto the new owner of teh contract as it legally must. Security deposits are the property of the tenant and held by the landlord and the landlord has the legal right to keep a portion or all if the tenant breaks the lease or does damage to the home.
Hope that clears it up better.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Jeff,
Option money is different from down payment money. You should read up on lease options to get a full grasp of this.
Two things on L/O's:
1. Usually, a portion of the rent is applied towards the down or purchase amount and is of course negotiable by both parties.
2. The option money is a FEE for the buyer/tenant to have the right of option to purchase at a predetermoined price point. If the property were to appreciate above and beyond the agreed upon purchase price, the option tenant has gained and in the opposiote direction, that do not have to excersise the option to buy.
Real Estate Investor · pottstown, PA · Member since 2008 · 22 posts · 1 vote
17y
Hey Nick,
Is that Normal to Wholesale a "Subject To" 6 Months into the Deal? Usually when I wholesale a "Subject To" I Assign the Deal Immediatley and just collect my Assignment Fee. I let them decide wether they want to Lease Option the property or Offer "Owner Financing". Have you Assigned a "Subject To" this far into the Deal before? SULLY
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Sully,
By keeping the sub2 for 6 months or even one month, allows you to have a larger profit margin.
If you just get say 20% of the equity in your wholesale, that is ALL you get. If you place your own L/O tenant, you get their option fee cash plus all the cash flow spread for each month you keep it.
Best scenario I would say is to place the L/O tenant and then wholesale it off within the first 2 months and repeat.