Buying homes "Subject-to"

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    Question Buying homes "Subject-to"

    Was wondering if anyone had experience investing in property using this method?.. Basically taking over someone's mortgage payments (motivated sellers) and then turning around and seller-financing at a slightly higher interest rate. example:

    taking over a property with an actual value of 85k for the balance of 70k. Your house has an interest rate of 6% and a monthly payment of $420. You sell for the actual market value of 85k with 8k down and finance the balance of 77k @ 10%. The buyer’s payment to you will be $675 per month. You get 8k in cash up front and $250 per month for the next 30 years.

    In the future this may be something I look into as a "cheap" way to acquire homes and create passive income. Only thing that scares me away from this is the DOS clause.

    I'd like to know if anyone is or has done this successfully.
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    I have no background just seems like it will be hard to find people that owe less than whats its worth and selling to you for the less amount.

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    I've been researching a lot lately on investment properties and "subject-to" is a way to procure a house without a downpayment, I may be wrong... I'm still trying to learn. Why wouldn't you try to get 100% financing through a bank? You could potentially earn more if the home is renting for more than the mortgage plus tax and insurance??
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    The whole point of "sub2" is not needing to go to the bank because you're working with motivated sellers that will deed you the property and walk from the home. You might give the sellers a few 1000 to get their affairs in order but the sellers are usually people that are looking at foreclosure, lost job, or some other crisis that they need to move quickly, another reason why bank financing is impractical in this case.
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    surma884 is offline Junior Member
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    How will you find a buyer that will pay a higher rate (10%)? I'm guessing they would be high-risk buyers who don't have good credit. If the buyer has good credit they will just get a loan for 6%.

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    ^ ya if they even qualify for a loan. What I don't get is why the investor requires the seller to keep their name on the mortgage when they deed over the property...

    So basically the investor owns the house, he's making the payments, but if he doesn't, then its the sellers ass on the line because their name is still on the loan.

    If chump is reading this, maybe he knows the answer..
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    surma884 is offline Junior Member
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    ^ That's weird. Where did you learn about this?

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    From this guy. He came to our town to talk at our local real estate club a few years back. I bought his course but never did anything with it.

    http://www.sub2deals.com/
    "HEY Panda, we don't take too kindly to your types around here!" "Now skeeter, they ain't hurtin no body"
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    surma884 is offline Junior Member
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    I found something about it here: Subject To - Buying real estate subject to existing mortgage - Learn a creative way to buy foreclosures subject to existing mortgage

    "Taking a property "subject to" existing mortgage means that you get the deed but you do not assume the loan. The loan stays in the original homeowners name, but you now control the property and make the mortgage payments on it. If you don't make the payments, you could lose the property and any equity in it. However, if you don't make the payments and you lose the property, there will be no personal liability beyond the loss of the property."

    So you, as the investor, are doing a favor for the motivated seller by protecting their credit. You get the deed to the house and you make payments on the loan on the motivated seller's behalf. The loan stays in the motivated seller's name so that the lender doesn't notice. If the lender notices that the deed has been transferred they might call on the loan.

    In return you get the house at whatever the principal balance is left. If the house is worth $100k and the principle left on the loan is $80k, you get the house for $20k less. In the case of the divorcing couple in your original link, the investor probably had a clause in the contract that basically said they [motivated sellers] would have to vacate as soon the investor found a buyer.

    What I don't understand is that if you find a buyer and provide the financing you would still be making payments on the motivated seller's loan, how would you payoff that loan early? How would the correspondence with lender occur if the motivated seller is long gone?

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    Grandpa Scott is offline Banned
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    Ive bought 7 houses using Subject 2. The only thing that can really go wrong is the Mortgage company can inact the "Due on sale" claus, and call theloan due if they find out the deed has been transferred. Ive NEVER seen it done, but it is a possibility.

    It can be a very easy/quick way to get houses/passive income very very quickly. My mentor hold about 150 houses at any given time. If you get into it make sure you go through a seasonedinvestor for training because the paperwork needed to make it work properly is extensive. You need deed transfer papers, Power of attorneys, purchase contracts with the proper language, etc...

    I got out of it becase it was impossible to sell the houses for a profit and after 4-5 years the original homeowners tried to start buying houses and couldnt because the house was still in their name. Then we started getting calls every other day screaming about why we havent sold their house yet, etc...
    Good luck. If you have specific questions on it, let me know.

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