There are four ways to make money from subject-to’s. But, before I tell you one of those ways, let me quickly tell you about my search for a new home. I met with the seller last week and negotiations went nowhere so I left. Basically, the guy was not motivated enough, so I’m going to start sending out letters and continue my quest. I’m not going to update you every week (because I don’t feel like it), but instead once I buy my place I’m going to write a long post and give you the exact details about how everything went down.
Learning “They Pay You” Subject-To
Alright, how many of you know what the “they pay you” subject-to is? Probably not enough. Here’s how it works: When you purchase a property subject-to, you know that the property must cash flow typically around $200 a month at minimum. However, in this market a lot of calls that I get are sellers who want me to take over their payments ASAP, but when I do my research the property doesn’t cash flow.
Let’s use a scenario to show you how I solve this problem. I get a call from a seller and he wants me to take over his payments of $1,500 a month. I run my numbers and market rent is $1,300. I also know that I want positive cash flow of $200 a month, which means I need my payment on this house to be $1,100 a month. So, I call the seller and using my scripts I let him know that I can assist him. I tell him that I can take over his payments, however since our company doesn’t take on negative cash flow he will have to write me a check for $400 a month. I do this for a five year term, and you’d be pleasantly surprised that a lot of sellers are willing to do this. Think about it this way: Instead of having to pay $1,100 per month, he now only pays $400.
And, for you negative people out there who say this doesn’t work (it works, I do it) let me show you how you minimize your risks. You have iron clad paperwork which states that if the sellers do not make the payments to you, that you will stop making their mortgage payment and the property will be foreclosed on and their credit ruined. Only once, have I had a seller “test” me on this. He stopped making the payments, so I stopped making mine and right before the house was to go to foreclosure he brought his payments current (you only do this technique on straight rentals because of the risk, not on properties you sell via lease option).