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There
are so many different ways that are taught to buy Sub2. It is really
amazing listening to some of the ways the GURUs are teaching these days.
I
cringe when I hear of the latest carnival barker on the speaking
circuit telling newbies "no equity, no problem" or "some will cash
flow, some won’t. The ones that do will balance out the ones that don't"
What a bunch of Bull Chips!
You make your money when you BUY real estate. That doesn't matter if you buy for cash or sub2.
For
some reason, it seems that people believe that because you are getting
the deed or buying subject to, all the regular definitions of what
makes a good deal a good deal go out the window. It is as though when
you use this method to buy, it waves some sort of magical wand over a
deal that under any other circumstances would be a no go. Because the
financing is already in place and in someone else's name, it is all of
a sudden good to go.
Let's see if we can really clarify some of the confusion on this purchase technique..................................
Let's start with what "Subject To" (I call it Sub2) IS:
When
you buy a property “subject to,” you are purchasing it subject to the
existing financing. Put simply, this means that the loan(s) and any
other liens or encumbrances already on the property stay there without
any formal assumption on your part. The owner deeds the property to
you, and you take the payment book and start sending in the payments
just as the former owner did. Simple, huh?
Now..........Is It Legal?
Well,
don’t let one of those attorneys or real estate agents you sort through
before you find the right one convince you that there is anything
illegal about getting the deed. If anyone tries to pull that one on
you, ask them about line 203 on the standard HUD-1 form where it says
“Existing Loans Taken Subject To.”
Why Does It Work?
“But
why would any seller go along with this?” you ask. Good question. In
the beginning, I thought this was the biggest bunch of malarkey in the
world.
Sellers will GIVE you their house?? Yeah, right!
I’ll
say there are as many reasons as there are houses, of which I have had
somewhere around 200 deeded to me from sellers in a wide variety of
situations.
For example, there was the seller with perfect
credit who was being downsized and wanted to stay, as he put it, “ahead
of the 8 ball.” He deeded me a beautiful 3 bedroom, 2 bath, 2-story
home which was only 7 years old and had well over 25k in equity. He
just needed a fast sale.
Then there was the lady who deeded me
her house for the loan balance of $14,000. She had owned the house for
25 years but her mother had recently died and left her another house
free and clear. Although the house she deeded me needed $10,000 in
repairs, it was still worth $70,000 or so after repairs. When I asked
what she wanted for it, she said she just wanted to be rid of it.
Many
sellers have deeded me properties days and even hours away from the
auction block - some with substantial equity, some with little equity
but low-interest, 5% loans.
Not all sellers who deed you their
property are “unsophisticated” or “down and out.” Some just realize
that they have a problem that needs an immediate solution. You just
need to know how to provide it.
Sub2 is a great way to build a
portfolio of income producing real estate. There are no limits because
the loans are not in your name, you never have to qualify so you can
buy as many as you want. It is powerful stuff.
Because of this
lack of "policing" by banks or lenders, it is crucial that the investor
using this technique be well educated and "know his limits" so to
speak. As with anything where there are no limits or controls put in
place, self-control and common sense are especially important.
So now we know what Sub2 is. Let's talk about what it isn't.
Buying
Sub2 is not a cure all for bad deals. Buying Sub2 does not license you
to go out and sign up no equity deals that put your assets and the
seller's credit at risk. Bad deals are bad deals. Just because you can
get a deed doesn't make the deal good.
Buying
Sub2 does not give you the right to walk away if the deal goes bad.
Some "teachers" teach this as one of the benefits of buying using this
method. I say those "teachers" should be drawn & quartered. When
you buy Sub2, you make a commitment to stay in the deal until the loan
is retired. The seller entrusts his credit to you and you shouldn't
take that lightly.
No matter what shape the seller let his
credit get into, your responsibility here as in the rest of life, is to
leave things better when you leave than they were when you found them.
This includes your seller's credit. Walking away from the deal is NOT
an option.
Sub2 is a powerful, awesome technique for buying real
estate. It can make you very wealthy and I credit it for a large part
of my success.
Use it with care and responsibility and know it's limitations and it will do wonders for your balance sheet.
William Tingle
http://www.Sub2Deals.com
(c) Copyright 2007, All Rights Reserved.
