All Forum Posts by: Randy Thomason

Hi Michael,

First off let me say the other two people responding were spot on as for cash flow. in a lower end property like that, your vacancy and repair rates will be higher than if you were in a higher quality rental range, but there are sometimes other reasons to do a particular deal.  

How far into the mortgage is the seller?

What is the interest rate?

Is there PMI on the mortgage that could go away soon and increase your cash flow?

Other things to consider when doing a Sub2:

Did you verify that the mortgage is a 30 year fixed rate?

Are you closing the property in to a trust?  If not beware you're likely to get the mortgage called.

Do you know the right sequence to follow in closing the transaction so you don't open yourself to a future claim of possible insurance fraud or lawsuits because you have two policies and each point the finger at the other to pay a claim and in the meantime the bank finds out about the sub2 because of the claim and then they exercise their due on sale clause on you.

Sub 2's are a great tool to buy properties IF you know what to do and how to do to minimize risk.  Unfortunately, a large majority of people out there telling people how to do them know the basics but not all the in's and out's and legalities.  

I'm not trying to scare you off from them but I do want to emphasize they are possibly the riskiest way to purchase properties if you don't fully understand them.