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Stay Blessed @Jack Bobeck

@Glen Friedman thanks for your feedback

Buying a property subject to an existing mortgage can seem a bit complicated and risky if you’ve never dealt with buying one. However, with risk often comes reward as these properties can be prime candidates for cash flowing rentals or lease option opportunities. For those of you who have never closed on a property subject to an existing mortgage, I’ll explain here about my story on closing my first one ever.

My first subject-to deal came about one day when I was riding around with my friend Malachi. Malachi told me his partner and him had a property for sale with an existing mortgage. He told me that the seller wanted to walk away with $2,000 and that him and his partner wanted $4,500 for their assignment fee. I said ok, what’s the address? I looked up the house and proceeded to stop by and do a walkthrough. It didn’t need much besides an AC unit, some new carpet and paint in a couple rooms. This house is a 4 bedroom, 1.5 Bath, 1470 Sq Ft. concrete block home In Jacksonville FL.

After looking over the property, I went home and contacted Malachi for some more information. When evaluating a subject to mortgage deal, the mortgage needs just as much analysis as the property does. I typically ask for 5 components:

-Monthly Payment

-Interest Rate

-Years Left on Loan

-Mortgage Balance

-Cost To Reinstate Mortgage

These 5 mortgage components combined with the condition and ARV of the subject property can tell you if the deal is good or not. Monthly payment is what the homeowner pays to cover PITI. (Principal, interest, taxes, and insurance.) The interest rate is what the lender charges to issue the loan. Years left on loan are how many years remain on the loan until it is paid off. This is important to know because when paying a mortgage, the amount that is reduced from the principal balance each month grows as the mortgage is paid each year. Therefore, it's nice to get a property where 10-20 years have already been paid on the loan.

When purchasing a property subject to mortgage, the homeowner is typically in distress and behind on payments. In order to keep the property from being foreclosed on, the mortgage must be made current and no longer delinquent. In this particular case, the homeowner was behind several months, totaling $3,345. This could have been better, but also could have been much worse. The monthly payment happened to be $666. The property can rent for $1200-1300 so I knew that I could produce great cashflow if I were to rent it out.

The mortgage balance was $104,000 with the interest rate at 4.875% and with 27 years left on the loan. These numbers weren't great, leaving around $10,000-15,000 in equity as the property ARV was around $135,000. However, with the cash flow being as good as it was with the property only needing around 8k in repairs (AC, bedroom flooring, bedroom paint), I decided to move forward and purchase the property. Here is how much it cost me:

-Mortgage Reinstatement: $3,345

-Closing Costs: $2300

-Wholesale Fee: $4500

-Cash To Seller: $2,000

Total Acquisition Cost: $12,145

Total Renovation Cost: $8,000

Now here is the projected rent rate, cashflow and ROI:

Total Cost: $20,145

Projected Rent: $1250 A Month

Projected Cash Flow: $584 A Month

Projected Yearly Rental Income: $7,008

Cash Paid: $20,145

Gross Cash on Cash Return: 34.78%

As you can see, this property should yield a 35% return per year. This means the 20k I invested in the property should be paid back to me within 3 years. However, it's important to also factor in vacancies and future repairs to the property, as these also effect ROI.

One final tip about buying subject to mortgage. Banks have a clause in their loan agreements known as a "due on sale clause." This clause means that the lender has the right to call the remainder of the mortgage due when the property is sold/changed owners. Therefore, when taking title, it's best to take title in a trust. This way, the bank will not know that the property was sold as the owner will be hidden through the trust. When taking title as an individual or an LLC, the bank may notice this and call the loan due, something that can kill your deal and cause you to lose money if you don't have a means to sell the property or refinance.

Some of the best marketing campaigns you can do is through online SEO INBOUND LEADS. These leads are typically much more motivated to sell their homes than the people we cold call and mail. However, in order to garner these inbound leads, you'll have to create a trusted and reputable presence with Google and your potential clients. If you want to learn more about how I created a new website and ranked it to #1 for several local "we buy houses" keywords, just shoot me a PM. The best part about it is that I only pay $150 a month. Best of luck with your marketing efforts!

Some of the best marketing campaigns you can do is through online SEO INBOUND LEADS. These leads are typically much more motivated to sell their homes than the people we cold call and mail. However, in order to garner these inbound leads, you'll have to create a trusted and reputable presence with Google and your potential clients. If you want to learn more about how I created a new website and ranked it to #1 for several local "we buy houses" keywords, just shoot me a PM. The best part about it is that I only pay $150 a month. Best of luck with your marketing efforts!

The famous “subject to.” Investors far and wide have pondered what this mysterious term refers to and how it can be utilized in putting a quality deal together. A subject to deal refers to purchasing a property “subject to” the existing mortgage. This means that the property currently has a mortgage on it from a lender. The mortgage consists of the term or years left on the note, the interest rate, and the remaining principal balance. When taking on an existing mortgage from the seller, the loan stays in their name while the deed to the property transfers to you. The payments are now your responsibility. However, if for some reason you do default and no longer make the payments, you are not liable or at risk, the seller is. Their credit will take the hit and you’ll be relieved of your obligations.

So what makes this “subject to” thing so appealing for investors? First off, taking over payments on an existing mortgage allows you to save time by already having financing in place. You won’t have to go through underwriting with banks and deal with appraisals. You also won’t have to qualify for the loan, so your credit isn’t pulled or taken into consideration for you to obtain financing. Next, you may be able to take advantage of a low monthly payment and interest rate depending on the structure of the loan. This low monthly payment allows you to move into the property and live there for an affordable price or rent out the property and generate cashflow.

Another benefit of a “subject to” deal is possibly being able to acquire property for a low downpayment. Most sellers who are willing to let someone take over their mortgage payments are facing foreclosure and would rather walk away with something than lose their house entirely, in addition to taking a credit hit. The majority of these sellers are behind 1-3 months in payments and added fees and this amount typically isn't anything over 10-15k. They may want to walk away with some cash, and this can vary from seller to seller. I’ve seen deals where sellers only ask for 2-5k and others where they want 50k or more. This usually depends on the equity they have built in the property. If the seller is only asking for their past due payments to be covered and for a small amount of cash on top, this can be an easy deal to wholesale to a first time home buyer. This buyer may have 15-25k saved but cannot get the financing in place to purchase a property due to credit or past eviction issues. The good news for them is that you now have a property where they won’t need to secure financing in order to move into the home. They can pay the downpayment and have a place to live. Depending on the scope of repairs, you could also wholesale these deals to a flipper/rehabber.

As you can see, the “subject to” strategy has many ways in which it can be utilized and used for your own benefit. However, there are also some risks you do have to look into before assuming a mortgage. The length of the term is important, and if the loan term is set to expire in a few years, there may be a balloon payment attached to this. A balloon payment is when the bank demands for the remainder of the loan balance to be paid in full at the end of the term. Similar to this, is the due on sale clause. This clause is triggered when the mortgagee goes to sell the property. Once sold, the new buyer is required to pay the remainder of the loan balance. When looking at doing a subject to deal, make sure to understand all aspects of the loan agreement so you don’t get caught up in something you don’t want to take on. Besides this, subject to can be an awesome way to acquire property for a low up front cost and or low monthly payment, allowing you to wholesale to a first time home buyer/flipper or rent the property out for some solid cashflow.

When real estate investors hear someone pitching for them to get their real estate sales license, their immediate response might be “but I don’t want to work as a real estate agent, what’s the use in getting that?” This common response is within good reason. It’s not easy to get your license and often takes long hours of studying to pass the exam. There are also fees or dues that you must pay to become a realtor. These reasons alone can make investors shy away from attempting to get their sales license.

Now, full time investors and full time real estate agents don't focus on the same work and have different skill sets. Real estate agents represent buyers to find and show them homes to purchase (whether investment or personal residence) as well as represent sellers to find them a buyer for their properties. They accomplish both of these tasks by utilizing the MLS (more on the MLS later). Investors on the other hand, are involved in either fixing and flipping homes for profit, wholesaling deals/assigning contracts, or buying and holding properties for cashflow. Most investors have no interest in working as an agent because this is not their niche or expertise. However, getting a real estate license does not in any means obligate you to work as a full or part time agent. What it DOES do, is allow you to have more tools as an investor and save money when you sell your homes on market.

Here’s How-

First off, becoming a realtor allows you access to your local MLS. MLS stands for the Multiple Listing Service. This platform gives you a wealth of property information and data. It lets you pull comparable properties to see what similar homes are selling for as well as pull cash transactions to find buyers for specific zip codes in your area, just to name a few features.

Next, having a realtor’s license gives you the privilege to represent both the seller and buyer as a transaction facilitator. As an investor, you will run across many sellers who would like to sell their homes, yet they can’t or aren’t willing to sell for the price you have to offer. When this dilemma occurs, having your license can be a great asset. Now you can pitch the seller on agreeing to let you list and market their property and in turn, get them the price they are asking (and hopefully more). Agents usually charge a standard fee of 6% as compensation when bringing a buyer that results in a sale. So for a $100,000 property, you have the potential to make $6,000 off of that one listing. On the other side of the coin, you can solely represent buyers who want to purchase investments or a place to live and make 3% when they close on a property. Having your real estate license gives you another way to make money and provide value when your cash offer isn’t accepted. Now, not all investors may want to take on listing agreements, but you can use this info to your advantage by letting another agent take the listing and work on some sort of compensation for the referral.

Lastly, having your real estate license allows you to list your OWN properties on the MLS. As an investor, when I fix up my properties, I'm looking to sell them on the market for full retail value when finished. Being licensed allows you to avoid having to pay an agent 6% to represent you as the seller, as well as find you a buyer. Since I'm licensed, I have the power to save this money and simply list it myself. Now I only have to pay 3% for an agent to find me a buyer, and sometimes nothing when the buyer happens to be unrepresented. This can be a great savings over time.

Having a real estate license can be a huge advantage in the long run for an investor. Just because you're now classified as a realtor, doesn't mean you have to switch your hustle and focus on another business or learn new skills. It's simply an achievement that gives you more options to help buyers and sellers, allows you to pull better data and info on properties, and saves you money by giving you the ability to showcase and market your own homes on the MLS. Now go out and get your license! 😛

Expenses, liabilities, charges, fees, bills etc.
Whatever you want to call them, they hurt and we are always trying to find a way to reduce our costs. One of the largest expenses we face is often our housing payment. Most individuals pay for their property occupancy on a monthly basis. Whether this is rent or a mortgage payment, paying this down every month out of your own pocket may seem set in stone and something that is just part of life. However, this is far from the case. There are a few creative ways to save yourself from the pain of PITI or rental payment. These methods are known to real estate investors as "house hacking." The traditional way to house hack, would be through purchasing a multi family property and living in one of the units, while renting out 1-3 of the other units. The most affordable way to do this is typically through an FHA 30 year loan (3.5% down payment). This can also be done through a VA loan (0% down) but obviously not everyone qualifies for that. For example, if you bought a triplex for $150,000, utilizing an FHA loan you would only have to bring $5,250 plus closing costs to the table. This would mean you would be financing $144,750. Over 30 years at a standard interest rate of 4.125%, you would have a monthly payment of $701.53. Add in taxes and insurance and you'd be looking at around $900 a month in total costs. Now, you'll be occupying one of the units and will be renting out the other two. Hopefully these units are rent ready or already occupied, therefore needing no repairs. If these units were 2 bed 1 bath, here in Jacksonville FL market (depending on the area), market rent ranges anywhere from $600-1200 a month. With the triplex being 150k, this is probably in a lower income area so we will assume the rents to be $650 a month. Now you have $1300 a month coming in from the 2 occupied units. This will generate you $400 cash flow a month ($1300-900). In addition to this, you can now occupy your own dwelling for FREE. Your housing payment is now covered by your tenants and they will also be contributing to the pay down of the loan. Based on this example alone, I'm sure you can now see how advantageous house hacking can be. There are multiple ways to house hack, and another popular method consist of renting out multiple bedrooms in a single family home. With that being said, house hacking is definitely something to consider trying out if you're looking to eliminate your housing expense each month and potentially generate some cash flow on top.

In the US real estate market, there are continuous cycles and trends that correlate directly to housing values. These values tend to make their way up to the sky and eventually shuffle back down to ground zero. Over and over again. Rinse and repeat. The line graph for housing prices never remains completely straight and it's often difficult to predict where things will turn next. No one knows for sure when a market will flip, in which direction, and for how long it will stay this way. Now, people all over the US buy houses, yet most of these people purchasing homes are not investors. Everyone needs a place to live, and this will never change. Most people buying a home are buying it for their own personal residence. They may have gained some knowledge of where the real estate market is currently from their realtor, but they aren't investors per say. On the other hand, you have the rental market. People decide to rent vs buying for a wide array of reasons. Maybe they can't afford the down payment for a house or don't want to be tied down to a 15 or 30-year mortgage commitment. Whatever the reason, people will always rent homes by necessity. This brings me to my next point. A large portion of investors in the US are known as "buy and hold" investors. These investors purchase properties, and hold them as rentals. Some may decide to do rehabs and make repairs on these properties before placing a tenant, while others purchase them already occupied and leave them as-is (turnkey). So what's to gain by renting out a property? Cash flow. This is defined as the money your property generate for you each month after all expenses are paid. Expenses typically being: principal, interest, taxes, and insurance aka PITI. However, not every investor focuses on buy and hold. Many investors strictly wholesale deals; defined as assigning your interest in a contract to an end buyer for a profit. Other investors purchase homes at a discount, fix them up, and put them on the market to sell for retail value. These are known as "flippers." When a market is at it's peak, and is projected for a downturn, flipping properties (especially large projects) can be very risky. The market may be at one price point when you begin the flip, yet once it's done and ready to be resold, the market could be somewhere else entirely. Your retail flip may turn into a struggle to break even if your spread is not wide enough to cushion this change. On the other hand, when housing values change, rents tend to stay fairly stable. This is especially true when you have long term tenants. These tenants probably have no idea where housing values currently are and just want to keep on paying the rent they can afford and living in the home that they enjoy. This means that in ANY part of the market cycle, your cash flow should be able to continue streaming in. You don't have to worry about supply and demand and whether or not your property is going to sell for the price you anticipated. The reason cash flow is king is because cash flow is money that you are seeing today. It's always present value based off of your expense to income balance. It remains this way today, next month, and the months on and so forth. I've talked to investors who have had the same tenants for over 30 years! Their cash flow continued even in the worst of market recessions. Therefore, if you're looking for a safe way to earn consistent returns, focus on a strong monthly cash flow. You won't be disappointed, and will be able to keep on generating monthly income no matter what stage of the business cycle the market is in.

Keep them as long as you can go without the money tied into them! And make sure they are producing KASHFLOOO! :)