All Forum Posts by: Jeff Rappaport

@Christian Cabrera

I am very confused by your post!  Is the property worth $250k-$270K or is it worth $163K.  The zestimate on zillow is hardly a reliable source for comparables.  Putting $10k in escrow on a subject to deal will do nothing for the bank in terms of the due on sale clause.  In my opinion, the last thing you want to do is alert the bank that you and your seller have violated the due on sale clause.  

I am not sure why you would be giving the seller $5k if there is no equity in the property.  I am even more confused why someone would give you an assignment fee of $10K.  I assume that the property is actually worth $250-270K.  If that is the case no wonder the seller is not very motivated.  If the property is not worth that how do you expect to sell it for $250K?

In my experience (I have done a lot of subject to deals) that the biggest motivating factor for a seller to do a subject to deal is debt relief.  If your seller is not looking for debt relief you are not structuring the deal correctly.  

Lets look at some ways you might structure this deal:

1.  Based on your numbers you could probably offer the seller $175-$185K cash.  This certainly depends on your comps, repair costs and what rehabbers are paying in your area. 

2.  Owner financing - You could offer $10K down, a low interest rate and $240K for the property.  You could then wholesale the deal to another investor or owner occupant for $20-$25K down and pass on a good payment and low interest rate that would have a rapid pay down on the principle amount.  You could do this as a wrap around mortgage or an all inclusive trust deed (either one will violate the due on sale clause).  You could also do a Contract for Deed or a Land Contract that will not violate the due on sale clause.  

3.  Owner financing - You could offer a lower price like $210K with a higher interest rate (4-5%) and a small or nothing down.  You could then wholesale the property to someone else just like you did in the last example.  If you get a small down ($5k or less) you could keep it and rent to own it to someone else.  You would have nothing in it as you would recoup your down payment through a tenant buyer.  You may have a decent positive cash flow a month and you will get the principle pay down of the loan.  You may have a pretty nice pay day at the end of the term.

4.  Rent to own - Offer $215K with a payment that is either in line with rents in the area or what covers the monthly payment.  Tell the seller after 60 days he will not have to worry about maintenance and repairs on the property.  Depending on what you negotiate you can either stay in the deal or wholesale it to an owner occupant.  

I could probably create several other scenarios that would work as well.  The point is that you need to gather more information from the seller and find out what the seller's needs are.  Right now you are just trying to make this deal fit with what you want.  I can tell you if there is real motivation on the sellers part this would be a deal for me.  I would construct something that would fit the seller's needs.  

I made a bunch of assumptions here.  Don't have all the facts.  Not sure you do either.  If you have other questions you can pm me.  Good luck with this one!

@Daniel G.

Your first step is to talk to the seller.  Find out if the seller would entertain taking payments for his equity.  Ask some questions about what is the least he would accept for a down payment?  What is the least he would accept for his monthly payment?  You need to know what, if anything, is owed on the property and what the payment is monthly.  

There are a many ways to structure owner financing - maybe there is a loan on the property that you can take over subject to; maybe it is free and clear and you could get the seller to carryback a portion of his equity in second position; maybe it is free and clear and he would finance the entire project for you.  You won't know until you ask!  Go back to the seller and find out if this is something he would consider.  Find out what is owed, how much, taxes, expenses, rent rolls etc.  Then come back here and post what the situation is and we can help you structure several different options for the seller.  Good luck!

Two properties for sale!  

Triplex in Mountain Home, Idaho

2 bedroom/1 bath units

All rented - brings in $1,700 per month

Tenants pay utilities except water/sewer/garbage

Just had $10k of work done

Was vacant last week.  Took 2 days to rent all 3 units.  Mountain Home is a great rental community!

Price:  $125K

Terms:  Cash

5 units in Parma, Idaho

2 duplexes -2 bedroom/1 bath units

Commercial shop  - rented to a feed and seed company

All rented - brings in $2,500 per month!  Rents may be a little low.

One duplex needs a new roof - bid for $3,000

Never vacant more than a couple of days.  Tenants in the duplex units have all been there over 2 years.

Tenants pay all utilities except water/sewer/garbage

Price:  $162,500

Terms: Cash

For more information please call Jeff at 801-209-2945 or email at [email protected].

@Sebastian Bedoya, sure!

@Eric Gross different areas use different instruments.  In Utah we use the Contract for Deed.  In Georgia you may use a Land Contract.  Just find out what is common in your area.  

@Chase Hancock @Devon Curney I applaud you both for taking action!  You are right that many will never get into the game because they want to understand every little detail!  However, @Jay Hinrichs is right also!  There are so many wholesalers out there right now not having a clue what they are doing.  This can put you in a very dangerous situation.  The Division of Real Estate in many markets is coming down hard on wholesalers that are not following the rules.  You need to be knowledgeable about what you are doing so you don't find yourself out of business before you ever get started.  

Let me give you a couple of suggestions:

1.  When the phone starts ringing you should be prescreening the seller.  I have a seller intake form I use that I would be happy to share with you if you pm me.  Depending on what you are trying to structure you need certain info from the seller - address, email, phone, property description, condition, what the seller thinks the property is worth, what they want, what they owe, payment, etc.  Without that info I am not sure how you will structure a deal.  Rapport is crucial and you will definitely ask some questions to develop rapport and to get at what the situation really is.  You are looking for motivation and it is not always just thrown out there.  Sometimes (many) you have to dig for it. 

2.  Tell the seller you will do some research and call them back tomorrow.  Set up a time to get back to them and follow through and do what you say you will do.  Trust is important in this industry.  Run your comps and decide whether it will be worthwhile to go out and inspect the property.  I personally only set an appointment if they basically told me they are so motivated that they are going to sell their house to the first person that makes a realistic offer to them.  If you have no idea what they want for the property then I am not sure how you will know whether to go to the house.  I usually put together a three or four option  letter of intent and email it to them within 48 hours.  I make an offer on about 98% of all the leads I talk to.  I then follow up in a few days and see which option interests them the most.  I do most or all the negotiating over the phone and may not even go to the property until I have a signed agreement or we have reached some stalemate but we are close.  

3. Whether you are a wholesaler, fix and flip, buy and hold or any other type of investor there is a lot to learn. I suggest you try not to learn and implement everything right away. Focus on getting good at generating leads and prescreening sellers. If you are good at this you will make money in this business. Start going to your local REIA or Meetups in your area and find experienced investors you can team up with. Offer to bring them prescreened leads for splitting half the profits for them negotiating the deal, putting together the paperwork, earnest money, finding the buyer and getting the deal closed. You may want to establish a few relationships with investors so you know who to bring what deal to. After you do some and are apart of the process you will be in a much better situation to do this on your own.

4.  I always tell new investors to focus on one thing and become great at it!  There really are only three things to do:  find the deals, find the buyers or find the money.  Money may require a license so most focus on the first two.  

Real estate has changed in many markets and cooperation has become much more acceptable.  I work with new investors in a number of ways.  One way is I give them a way to generate leads and teach them how to prescreen sellers.  The leads come to me and I do the rest.  Once the property is closed they are paid a portion of the profits.  In addition, I teach them how to become real estate investors.  I can tell you that you definitely will have investors in your area that will work with you if you bring them qualified leads.  Learn from the people that are already successful!  

@Eric Gross, I think your tenant is making this deal a little more complicated than it needs to be.  First, you are right, doing a wrap or all inclusive trust deed does violate the due on sale clause of your underlying loan.  Chances are nothing will happen with it but it is your loan so you should protect yourself.  I would look at doing either a contract for deed or a land contract whichever is used in your area.  Basically, you are selling the home on a contract but the deed is held in escrow until the entire balance is paid in full.  Just like buying a car.  You own it but the banks own the title until you pay them in full.  This will not violate the due on sale clause in your loan (definitely check with a title company or an attorney rather than just take my word for it).  By the way, doing either a contract for deed or land contract you would have a much easier and cheaper way of getting the property back in case of default (again check with an attorney).  

Second, I understand the small down payment since your buyer is going to have put some money and sweat equity into the property.  However, if you are paying all closing costs you will walk away with very little money.  I would ask the buyer to pay half the closing costs.  Make sure the buyer is responsible for the taxes on the property as well.  You would switch your insurance policy to a landlord policy and have the buyer get a renter policy.  

I would make sure to have an attorney write up the Contract for Deed or Land Contract being very specific with all of the terms the two of you have agreed to.  I would also consider putting a time frame on getting the roof done.  You may be able to structure something so that if the roof is not done within 6 months the buyer is considered to be in default.  The only reason I bring this up is that if you do this with him and he gives you 5K and does nothing on the roof or pay you he could stay in the house for less than paying you rent.  

The last suggestion I would give you is since he is putting down such a small amount of money why don't you structure it as a lease to own - $5k down, same payment or close to it and a short term until the roof is fixed.  Once the roof is fixed convert it to a land contact of contract for deed.  That way if things fall apart quickly you are only evicting him rather than foreclosing on him.  

Check with your attorney in terms of how long it would take to get him out of your house if he defaults if you use a land contract or contract for deed.  In Utah , it is about as long as an eviction so there would be no reason to do the rent to own.  If it is longer or more costly consider doing the rent to own first.  

Hope I did not confuse the hell out of you!  If you have additonal questions pm me.  Good luck!

@Nathaniel T. Landrum, I have done about 60 or more subject to deals over the years.  I am not an attorney so I would take this with a grain of salt and consult one in your area to verify what I am saying is true.  By taking a house subject to you are now the owner of the property.  You own the asset.  In some way, you have agreed to buy the property with the debt that already exists on it.  If the seller files BK the property is no longer an asset of his.  It should not affect your ownership in any way!  The debt is still in the seller's name but attached to the property.  You should be making payments on that debt.  There is nothing for the BK court to come after.  No asset.  The debt is already being paid.  Consult with an attorney to verify what I am saying is true but I don't think you have anything to worry about.  

@Ajay A. I invest in a number of areas in Idaho.  More specifically Pocatello, Idaho Falls, Caldwell, Nampa, Meridian, Boise, Mountain Home and Eagle.  I live in Utah but started investing in Idaho because income property is going for about half of what I would pay here.  I have wholesaled 18 or so multi-family properties in Pocatello alone over the last 14 months.  

Here's what I can tell you:  The rental market is strong in basically all of the areas I mentioned above.  You can get a cap rate of 9% or better in the smaller cities like Mountain Home and Pocatello.  I am not a big fan of Idaho Falls right now.  Too many vacancies and a lot of crap properties.  If you invest in Pocatello or Mountain Home you will find great cash flow properties.  They will be typically older, need some updating and will be in the lower income areas (no war zones just blue collar neighborhoods).  I personally like them for buy and hold since the markets there are very stable.  They don't go up or down dramatically.  Rents are on the rise and the vacancy factor is small.  

If you want to invest in the bigger cities or Treasure Valley area you will pay more for the property and the cash flow will be less (in most cases).  However, the rents are on the rise and you will probably see more appreciation in these areas.  You may also see more drop in values if the market corrects.  

It comes down to what you are trying to accomplish and what is your comfort level.  Most of the properties I have sold in Pocatello are to investors that live in Utah.  They cash flow enough so you can hire a property management company to deal with the day to day issues.  I personally think investors are making mistakes buying income property that don't cash flow enough to afford property management.  I also don't understand the idea of being able to go to the property.  I have not been to Idaho in 25 years.  

Investors in Idaho don't know what they have in regards to income property.  I have a triplex in Mountain Home for sale that brings in $1650 per month that I am selling for $125K.  I have a 4 plex in Pocatello that brings in $1580 per month for $110K.  Those properties in most areas of Utah would sell for $285K+!  

If you have some questions pm me so we can chat.  I may be able to answer your questions more specifically.  Good luck in your search!

@Henry Winn, I am not sure why you would want to be the one refinancing a subject to deal.  In my mind, the whole reason to do a subject to deal is not to get any conventional financing.  It really comes down to what your exit strategy is.  Are you going to use the property as a straight rental?  If so, you want as long as you can get.  Why not tell the seller it will remain in his name until your end buyer gets a loan.  That may be one year or the length of the term of the original mortgage.  How long would you like me to continue to make your payments, deal with the maintenance and repairs and the taxes and insurance on your property?  Most sellers that are contemplating subject to deals are looking for debt relief.  If you explain it properly to them the sellers will usually tell you what their objections are.  Isolate those objections, be honest, and tell them what you need to get this deal done!

If you are going to lease to own the property or sell it on a contract then you may only need 2-3 years.  I typically ask for a minimum of 3 years with the right to extend for an additional year or two for either no money (as long as the payments have been made on time) or for $1,000.  I would give my buyer less time than I have and would charge them more to extend.  

Also keep in mind that anything you negotiate now can be renegotiated later.  What happens if you agree to 3 years and your buyer or tenant cannot buy the property?  Well, you go back to the seller and tell him you need more time.  If the seller is not getting any money from the sale of the home then it is fairly easy to show him that this is the best deal for him.  If he is gettting some money offer him some.  Offer him more money if he waits.  Offer to give him the house back.  Unless you rented the house for cash flow and future appreciation you have made some money on this house.  

The only other suggestion I would give you is make sure you not only understand how subject to works but other options you may be able to present the seller.  For instance, you should definitely let the seller know that by doing a subject to deal you will be violating the due on sale clause and the bank could call the loan due.  I would hope that you will take some precautions to make sure that will probably not happen but the seller needs to know it is a possibility.  If that objection is too difficult to overcome let the seller know you may have another solution in terms of a Land contract or a Contract for deed.  Basically the same as subject to except you as the buyer does not get the deed until you have paid the seller in full.  You do not violate the due on sale clause so the bank will not be calling the loan due.  You still own the property and can usually do anything you would have done anyway with the deed.  

Hope this helps!  At the very least it should get you thinking about some different things.  If I can be any further help you can pm me.  Good luck!