All Forum Posts by: Richard Balsam

I assume you mean that the owner is willing to allow the subject-to for up to two years, then requests his name to be off the deed, but the amount of the note is almost equal to the market value of the property? That would be tough due to his two year requirement in my opinion.

For example- if he is willing to stay on for 5 years (or close to this time frame), a few things can happen. 

1. The property over the next five years can be paid down a little by you creating a small amount of equity. Better yet - pay a little bit MORE per month in principal reduction with each payment, or make 13 payments per year - from the tenant's cash flow.

2. You can cash flow with the right lease-option tenant where you keep the option payment if you have to evict -so you have funds to fix up and re-market the home to another lease option tenant. This way- if it ever comes to fruition, and the lease option tenant exercises his/her option, you will lock in the specified sale price that you created in the Option agreement ( property must appraise of course). No real estate commissions, no marketing expenses- just a small amount of closing fees - attorney, pro-rated taxes, transfer tax, HOA, etc. Approx $2,000 +/- on your side. Same for their side ( new annual property insurance, pro-rated fees, escrow deposit ( 2-3 months, etc).

I'm not saying it will be easy finding the right tenant - luck plays a role too. Also, that the house doesn't have major repairs needed during the term, the tenant is great ( ha!), etc, but it can be done. Just be careful.

Go the the Georgia "Secretary Of State Division Of Corporations" web site. They have information on how to form your own LLC. I have four - did each one on this site. Just follow the directions or call them if you have any questions. Make sure you fill in all questions and set it up right.

http://sos.ga.gov/index.php/Corporations/creating_...

Bogart is a tiny suburb of Athens. 

Although your idea seems well thought out, and a "system" of sorts, here is what happens at a foreclosure sale. Here in Georgia, we have the unfortunate circumstance of having Auction.com cry the houses in 70+ counties, including here in Atlanta. 

First, I agree that if you can do a short sale with the bank ( a big if, since many will fall apart before the auction ( I will explain the incentive shortly that the banks have to do this), you do have to worry about liens, 2nd mortgages, etc. Yes- the junior  liens very often will allow a "short sale" to satisfy the lien ( depends on whether Auction.com is doing the crying), you must buy Title insurance to make certain the title is clear.

That said, here is what happens at the auction. I attended yesterdays auction- so this information was proved to me again, just 24 hours ago from writing this. Actual examples I noticed by pulling out my phone at the auction and researching quickly: Listed on MLS: $55,000. Sold at Auction: $97K. Another: Listed MLS: $48,000. Sold at auction $87,000. There were five such houses that were listed on MLS before the sale out of 40 that I watched being sold. I was with two other real estate agent/investors - and we we couldn't believe the stupidity of the bidding wars going on. There were 150 people watching the 50 or so homes being cried ( I left in disgust after #40 or so). Another house was bid all the way within $3k of ARV. Without being able to step foot on the property!

Now- the incentive of banks to not allow a short sale when the foreclosure sale is imminent: First, they hired the foreclosing attorney to begin the paperwork and calculate the costs needed for the bank at auction ( costs money). Second: If the foreclosure process has begun, see above. Why would they sell it to you at a loss, when they just have to wait for the auction ( if the process has already begun) to recover everything? 

The problem here is way too many investors watching the flipping shows on TV. The real investors that have been doing this for a long time just watch in disbelief. I see a lot of the same faces - and they started bidding, but stopped at their "number". Amateurs don't because they KNOW they can get more for the house ( since it's theirs I assume!). Yes- home values can be improved to a point- based on the upgrades, but this costs money. If anyone buys within $15-20K of the market value - and the house needs $5-10K in upgrades ( assuming the roof or air cond. is good - rare!), then assuming their goal is to sell the home, unless they have a buyer waiting they will have to pay either marketing and holding costs, and/or real estate fees, selling costs, title insurance, etc. Good luck with this. 

Now- if you are able to find this house before any action is taken by the bank to foreclose - there may be a deal waiting, depending on liens on the home. A bank may deal with you on a short sale if they still have months before auction ( in Florida it can take 6 months waiting for the process, have a judge sign off, etc). In Georgia - we are not a judicial state- it is 4 weeks of advertising, and off to the steps. I have done a few of these myself - its inexpensive fast, and efficient.

So- in theory - you may have a plan. If the bank is willing to deal - jump on it now - don't wait. The auction (thanks to Auction.com and their bank clients) will jump the bid process and get the crowd into the buying mode they know can occur. I see it every month. 

I would just ask. If yes- great. If no, you have to find another method - Subject-to, private money, etc. The main problem that I found is that 1st lien holders do not allow a 2nd lien (mortgage) on the property on the same day as the closing. They want to make sure their lien is recorded first, and maybe a few are afraid of an unknown lien holder foreclosing (subject to the first lien) without their knowledge. For example- you are current on the first mortgage but neglect to pay on the 2nd - and they foreclose without telling the 1st - even though they must make continue to make payments to the first to keep it current. 

Now - if you find this to be true - that the 1st lien holder does not allow a 2nd on the day of closing - imagine the seller's problem. You close on his property. He is still waiting to close on his 2nd and to have the lien filed. You never show up at the closing. He's out the funds - since you now own the property. Only your goodwill left that that you will do as you say you will do. See the problem here? 

Hi Julia: Welcome to BP. I'm just up the road from you, and an agent as well - but only use my license for research online and listing my own properties for sale on FMLS. Been investing for over 13 years now- so I can help answer questions you may have - there's a lot to learn and it's very different than retail sales! 

You could always let the tax sale happen if you are out of state, and purchase from the current owner with extremely favorable terms, since a tax lien is in first position on the house. It will cost you a bit more due to the lien, but maybe you can take over the home subject to, and once you pay off the investor ( and make sure you get a release of lien filed)- you will only have the original first lien being the mortgage on the property. 

I have a property that I bought at a foreclosure auction. Never knew that the tax sale was on the same day. Another investor bought the tax lien while I bought the house. After two years - I received a "last chance" letter that they will be foreclosing next month- and the payoff was $3800 - or lose the home. Never knew of this lien- in fact, it wasn't even recorded against the property! But...I could not take the chance that it was fake. It was from a huge company that buys 100's at a time directly from the county - bypassing the tax auction ( yes- once the papers found out about the sweetheart deal they made- it was put on hold for a while). But this was the same company with our house lien. I ran to their location with check in my hand, and tail between my legs - and they did mail me a release of lien certificate ( had to keep calling to get it). Still have the house 10 years later cash flowing with lease option tenants. So - it can be done, and lien removed. Even at 18% interest, if you payoff the investor within a few months - the interest is still small. Good luck with this!

I've been doing lease options for over 13 years now. Yes, I've become skeptical with tenants ever trying to improve their condition. Why do I say that? Only a handful over all these years actually live by the lease rule, pay on time, take care of the house, and improve their credit scores enough to try at refinancing the home and excersize their option to buy the home. We even help by taking the few that are trying, and do take care of the house, and we owner finance them so they become the true owner on the home with our assistance. We then become their "lender" for a few years while they continue to improve their credit and financial picture.

That said, here is what I find when I take back the home ( read: evict and/or they move out before the lease is up): new 50-60 inch flat screen TV boxes in the garage, DirecTV set tops in all bedrooms ( that they do not live up to the original agreement with DirecTV and return the rented boxes), all of our original lightbulbs replaced with odd, irregular, different color bulbs in most of the lamp sockets ( a 5 socket light fixture that we installed with the correct bulbs will have 3 bulbs at most- none matching - why?!!), motor oil stored in the garage, usually a dead battery there as well, etc. What to make of this?

They have been given a chance to move in and hopefully own a very upgraded home will all upgrades that they could never right now afford, and they are too lazy to: recycle dead batteries ( it's hard to drop off at most car supply stores, Sears, etc), do not live up to agreements with any company ( landlord, DirectV, Dish TV, etc), Always switch jobs ( I approve the lease based on their incomes, and they wait until moved in and then change - as if they know how the landlord "game" is played), etc. Nothing is permanent in their lives. The house is usually extremely dirty after one year - with the same air filter installed -(after I show them how to change it at the lease signing, and it is spelled out to change four times per year), weeds in the yard ( too hard to pull them out as they become big I assume), many times- cars parked half on the grass ( we always have two car driveways and garages - and it is spelled out in the lease not to do this), etc. I could go on- but you see the point. I've had to re-do most of our lease option homes 3-4-5 times over the years with new carpet, paint, stoves that have never been cleaned - since they moved it. etc. 

All the above translates into: LAZY, not interested in improving their lives, not trying hard enough at work ( if their home is a mess - imagine them at work!), inattention to actual contracts - and what they sign they need to follow, poor money management, and do not have any idea or care less about what neighbors may think, or feel, living next to a house that is deteriorating in front of their eyes. Yes- I evict these people quickly when I see it - but cannot babysit everyone every month. But I do drive the houses a few times per year just to make sure our homes are still standing!!! 

Oh - I have heard from a few honest ones that they cannot pay the rent this month because they have a car repair, had to visit a dying relative, funeral, lost their job, hours were cut, school tuition was due for their son, etc. Yes- I think I've heard it all by now - they use the rent to pay other things far beyond their budget. I think this is your answer!

In case you're wondering...the owner financed families we have - many fall behind - but find a way to get caught up, take care of their home, and even thank me, and many have referred their friends to me who are looking for a home. But...overall, life is good. Just have to dispose of the ones with the excuses, dirty houses, etc. In Georgia- takes 2-3 weeks and they get tossed out ( using eviction companies). My fastest was 10 days from the initial paperwork filing to evict to tossing out. He was a special case...

Nice to hear - keep at it!

If you're not sure how many LLC's to have, or not sure how to do it - my advice is to form one LLC now- even if you place multiple home titles inside one. You can always grow and create another one as needed. What I have is four LLC's. One main one for my marketing, web site, rental income and property management over my lease option homes, which is employed by another LLC I have that hold title for my owner financed homes, as well a few lease option homes. Another one hold title for my smaller 3/2 homes, so not all homes are in one LLC, and a fourth one acts as my lending company, and has 1st liens on all my homes, as any bank would do ( since I do not have bank financing as of yet ). Then, for protection, every home has a $1 million liability policy - which protects my companies, as I am not on any home title. Next, just in case I am personally sued ( I have four family members driving around) - anybody can sue for any reason- car accident, etc - and may try and sue for houses inside LLC's I control - I have a $2 million umbrella liability policy over everything I own , control, etc, in addition to $300K/$600K liability coverage on each car. The cost of the insurance is pennies compared to one lawsuit in your life. So- the LLC are my first defense. The insurance on each home is my 2nd line of defense. The umbrella - is just in case some lawyer decides to try and go after me personally - covers my home, cars and investments. According to my lawyers - (I originally asked to set up trusts on my houses) - a trust does nothing, can and will be pierced in court, and offers no protection at all. It sells a lot of CD's and courses, but only hides the beneficiary - until further research is done - and yes - beneficiaries will be found if needed by the courts - and subpoened - even out of state. There have been court cases here in Georgia where the judges have look down upon with suspicion, hidden title owners - even though it's not illegal at all to do so - just wondering what is being hidden and why. I would not want any judge to come down on me- even if everything is legal and proper- just that I am hiding the true owner... Others will disagree - that's what makes a horse race as they say! Do as you feel comfortable doing, so long as real protection is done.