All Forum Posts by: Dan Walters

Welcome to the site, Celina and to your new venture!  This is a great place to start, but it can also be dangerous because there is soooo much information.  Study some different strategies and then make a decision as to which suits your goals.  Once you have made that distinction, study it, take action and go for it.  You have a huge network of supporters here that are all rooting for you and can be a sounding board.

Why do you want to use a land trust vs. a warranty deed to your personal name and/or business?  What is your exit strategy for the property (short or long term)?

@Nathan Brooks

I have 2 paragraphs in my P&S agreement under "Purchase Price"(this is not the complete verbiage, just a summary of what is in my agreement)

 Para 1: sum to be paid at closing: $xxxx, classified as back payments/legal fees..etc or "balance due at closing $xxx (excluding seller closing costs, prorations..etc). 

Para 2: Subject to existing loan balance in favor of "bank name" and loan information.

This declares how I am acquiring.  I structure the purchase price based on what is agreed to with the seller.  

Ex: Seller owes $100k on loan and is $3k behind on payments/fees..etc.  I have agreed to pay him $2k to help with moving and get another place.  My offer is $102k (balance on existing mortgage plus proceeds to seller.  Sum to be paid at closing is $5k ($3k in back payments/fees, $2k proceeds to seller) plus closing costs.

Hope this helps for future transactions.

You say that it's a FSBO yet it is listed with an agent. How long ago did they sign the agreement? Did the agent procure you as a potential buyer? Has the agent contacted you since you talked to the seller? Was the CL ad done by the seller or the RE Agent? Are you planning on giving the seller any proceeds from the sale? Are they happy with just walking away without having to pay for anything?

What are the numbers for the deal? What is the term of the option you are planning?

1) If the agreement was signed just recently your seller could negotiate with agent to let them out if they decide to work with you, if the ad on CL was done by the seller.  If it was an ad done by the agent they could have an argument that they procured you as a buyer. If the agent is involved, the next hurdle will be their ability to understand the transaction and advise their client to proceed with it.  Most agents will not get it and will likely be deterred by their broker to "stay away" from these transactions due to the liability they face in representing such a transaction.

The agent gets paid just like any other RE transaction, however more times than not the commission will have to come from your end, which can be negotiated (check with your state).  If you're structuring the transaction and doing all the "work", an agent may be happy with $500.   I've negotiated that in sub2 transactions with listing agents because the seller just wanted a representative on their side.  They didn't necessarily do anything other than review paperwork and confirm to the seller that it was a legitimate transaction.  To me that was worth $500 because it helped get the deal done.

You need to record the deed, otherwise it looks like you are trying to hide something. I suggest having a POA for your seller(s) along with a recorded deed to clear up any discrepancy. You will need it anyway when it comes time to get authorizations from the current lien holder to order a payoff.

Granted this is a complicated concept for 99% of realtors to understand, so yes I would just go find another that does understand or is willing to learn. However, having a recorded deed showing legal title and a POA will strengthen your position with the realtor or broker doing business with you. Worst case, get the POA.

Chris-  

I have yet to have a lender call a loan due on my sub2 transactions.  I don't have an extensive portfolio of sub2's but do have a handful that I've held for over 3 years.  The mentor that taught me the sub2 strategy has done over 400 in his 30 year career and here's what his experience has been:

1) There is always a chance that a loan will be called due.  Likelihood is that less than 2% will ever be.  You just don't know what 2%.  That doesn't mean 2% of your sub2 portfolio, but 2% in general.  It's possible that Investor A has 5 properties w/sub2 financing and Investor B has 25 sub2 properties.  2% of the notes are called and within that 2% are all 5 of Investor A's and none of Investor B's properties.  You just never know.  Is that likely to happen...probably not, but you have to assume that going into the transaction.  If you can live with that and sleep at night, go ahead.

2) When a bank calls the note, your timeline will be at least 90 days, however every lender is different and you may be able to negotiate.  You may be able to negate the acceleration just by asking some questions as how they would like that rectified.  

3) If the note is accelerated, your exit strategy will depend on your equity position of the property to market value. If there is significant equity..i.e. Mortgage balance $100K, market value $150k, you should not have an issue either selling to another buyer OR refinancing it with another loan (institutional, private money or JV w/another investor).

If the property is at or above market value, you will need to work a little harder in finding a way to refinance (things you need to consider prior to taking on transaction like this).  Understand that you are responsible for someone else's credit.  This transaction usually takes place with sellers that don't have many options due to the value of their property or they can no longer afford to pay.  They opt for this route to keep their credit in tact and prevent SS or foreclosure on their record (again, take this into consideration when evaluating the deal and this strategy).  If you do not have an exit strategy then you run the risk of damaging your seller's credit along with your reputation as a "problem solver".

If you cannot perform on the call, the lender will foreclose.

Regarding taxes, I have had multiple sub2 props for over 3 years and have not had an issue.  

Term:  My personal goal is to have my sub2 props for the life of the mortgage or longer.  All my agreements specifically state to the seller that I am not obligated to cash the mortgage out at any point in time.  My sellers enter into our agreement with the understanding that this loan will go the duration of what's left on the loan.

Hope that helps. 

Take into consideration that you are not dealing with your credit.  You will be taking over someone else's mortgage and your performance on that is tied to that individual seller's credit.  If you move forward with this transaction and 2,3,4,6 years down the road you decide to sell via short sale, you will be effecting their credit after they have already moved on from the property years prior.

In taking properties over sub2, you are providing a solution for the seller so they don't have to go through a sale that will negatively impact their credit.  If the potential down the road is a possible short sale, just do it now and get it over with.  Otherwise you run the risk of burning a bridge and creating a bad reputation for yourself.

Jose,

If your numbers are right on rents, you're cash flow would be great.  However, the fact that she has a significant amount of negative equity ($100k) would kill it for me.  You would be looking at 7-10 years if not more before you would possibly be at a break even point of market value.  While cash flow is great, you need to have an ability to build equity over time.  The biggest reason being if you need to sell. 

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