All Forum Posts by: Dan Walters

Good afternoon, Devin.

What type of property do you have here (multi-fam, SFR, apartment)? I have a couple I can recommend depending on the dwelling.

Dan

Greetings everyone! Looking for some feedback. I have a property under contract that an individual is selling post divorce. Seller is the only one on the mortgage, however he did quit claim his then wife on to title. Upon their divorce, there was not a quit claim back to him nor is there anything in their divorce decree about releasing rights to the property. The seller believes the ex is out of the country and unlikely to obtain a quit claim from her. Title will not clear until then.

Any suggestions on how this can still work under the assumption she is unreachable?

Thanks in advance.

@Mike-

You can acquire VA properties sub2 that do not trigger due on sale and does not require assumption of the mortgage. You acquire the property via installment sale/contract for deed, giving you equitable title, not legal title, and record a memorandum of interest on the property. The VA website states under Title 38 that a transfer of this type does not create a "disposition". This is from the VA site:

"p.If VA transferred title at the time of sale and received a mortgage or deed of trust, and the vendee or direct loan borrower plans to sell on an installment contract, contract for deed, or similar arrangement in which title is not transferred from the seller to the buyer, then this Is not considered a disposition of property subject to 38 U.S.C. 3714 and does not require prior approval of VA.In such a case the seller remains liable on the loan and should be made fully aware of this liability.VA's records will not be changed to remove the seller's name from the account."

I have done many of these as they are my preferred loan type to do sub2. There are some other forms/docs and disclosures that go along with this transaction but you in fact can take control of VA loans without having to assume or be in violation of due on sale.

If the numbers make sense to you on a buy/hold, this would be a way to do it. Especially with little to no money out of pocket.

Ru-

What type of information are you seeking?

@Chris

I understand, however that wasn't the question that was being asked.

If you're going to be giving investing advice on how to get started make sure you understand the strategy you are about to explain. Subject to strategy is not what you state above. That is a "contingency" or an "out clause" within your purchase agreement.

Sub2 is a strategy used to purchase property while keeping the seller's existing financing in place. There are a couple different techniques in which you transfer the ownership (Warranty deed or Land trust, many threads on BP about this strategy). Generally speaking, it is just like any other real estate transaction in that you the buyer are purchasing the property from the seller and will become responsible for making the mortgage payment after closing. Most states have a "acquiring subject to" on their state PnS agreements. If you need more assistance, title companies can be a great resource in helping make sure you have the proper documentation.

@Ned- That's a good direct approach. I like it.

@Graham: Try to find out from the agent why they are selling (relocation, job loss, upgrading, downsizing), what's their intent after they sell. If you can get that conversation going you may be able to get the agent to reveal their real need to sell.

You will have a difficult time in getting the realtor to have their sellers agree to this type of transaction due to the risk it poses to their client's credit and the due on sale. If your dealing with an agent that has been around for sometime and has experience, you may have better luck. I have yet to complete a sub2 when an agent is involved. I almost had one where the selling agent and seller agreed in writing and her broker killed it. Refused to do it.

You are stating two different numbers here for mortgage balance($347k w/2 existing mortgages/$164k total ($147k+$17k DP). What I assume you are saying is there is a remaining of $147k on the first mortgage and a 2nd with the difference of $200kish?

From the initial numbers you are stating it may look like a solid opportunity, however I think you're missing some "real" expenses that will make this look not so attractive.

First off let me say that I do not know the Nashville market whatsoever, so hopefully someone that is can chime in and give you a better perspective. My experience has been that condos are not greatest of investments. In most markets their values are the last to appreciate and the first to fall during a crash (generally speaking). If your intent is to flip, you have a very small, specific buyer's pool as most want SFR.

If you flip, based on numbers provided ($380k retail comp and $347k existing mortgages) gives you little to no profit on the deal. A bare bones minimum transaction of this size w/no realtors will cost you 1.5-3% in fees (up to $11k), add in an additional 3% for realtor on selling side($11k), now your under a $10k profit (assuming you have no carrying costs, repairs/upgrades, mortgage payments, utilities...etc****DON"T ASSUME THAT!) Not a deal at all.

Cash flow/rental- My subj2 deals are always taking over the existing loan with no time frame set for me to refinance/cash out or otherwise. I take it over because the terms are favorable for the purpose of long term cash flow/rental income. My seller understands that and has no expectation of it being refinanced. There is no right or wrong. You can structure however you want. This just gives me the security that I don't have to come up with $XXX,XXX at a certain point in time. The other thing I would consider is how viable/strong is that $2800-3K/mo rental income? Is that inflated due to vacancy rate, economic conditions..etc? Does that location historically hold those values?

Make sure you calculate for expenses. Your monthly net income is not mortgage pmt/condo dues. You need to factor in a percentage for maintenance every month (paint/flooring/HVAC..etc), reserves for vacancies(3-8% if not more). All of these cutting down your net monthly.

Lastly, sub2 transactions are great, creative ways to acquire RE and get into the game, however there are some CYA steps you need to take regarding documentation and most importantly the due on sale clause. Every mortgage has them and yes the lender can call a loan. Regardless of the likelihood that they will is irrelevant because you just don't know. What you have to ask yourself are 2 things when doing a sub2:

1) Will I be able to sleep at night knowing that the lender(s) could potentially call a $347k note due?

2) Would you want 20 of these same properties w/same numbers?

Hope that helps.

Brian,

I'm not completely following the numbers that you're explaining. You state that the total on the 2 existing mortgages is $347k. What do you mean by your sub2 term of 3yrs, Down Payment (by/from whom?)? Where is the $163 purchase coming from? What type of loan (FHA/VA/Conv.)? Rate? Fixed or ARM? Monthly PITI?

I have a few more comments but will wait to include once I can understand the numbers you are stating.

Chris-

First off, that's great that your tenant gave you that much notice. They obviously are respectful to you and the time of year in which they will be moving.

What other types of marketing are you doing other than CL? Do you already have a sign out on the property?

There's always the ideal tenant that you are hoping to find for your property, and when you receive apps that are outside of that ideal it's easy to go right to the negatives of "what ifs". Stick to your criteria for qualifying a tenant(s). If they pass the initial financial/background/reference checks then take the next step to meet with them. That initial meeting should give you a solid "gut" feeling to make a decision. There is more diligence you can always do but stick to qualifying criteria first and then decide if you need more info to make a decision.

Like you said, you have ample time to find the right tenant however that time moves rapidly if your not proactive. Now is the time to be aggressive with your marketing and not passive because you have all that time. If you do not move forward with these applicants, start marketing the property heavily (CL, signs on property/flyers around neighborhood&community...etc) to generate activity.