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"Subject To" in a Nutshellby Al Susoeff
Today we took another house for free. The process, for those of you not already educated about these sorts of transactions, is known as a “Subject To” deal. “Subject to” means that we took the home subject to the financing already in place. This is probably the BEST method I know of for getting a home with the least amount of work and the most amount of profit. Pay close attention disciples of Preston Ely, Nate Kennedy, Matthew Sorrenson, Mike Collins and about a million other Wholesaler Guru out there. THIS is the best method for the least work…NOT wholesaling. Don’t get me wrong guys, I think you SHOULD wholesale houses…when you are getting started. It is a great way to get your feet wet in the business, and make a couple of bucks. The problem is that’s all it is…a couple of bucks. I wholesale one from time to time, but to be honest, I buy more from wholesalers who do all the work for me than I wholesale to other investors. A wholesaler is nothing more than a glorified bird dig, but I digress… Here is how we did it: We found out through our network about a couple who is going through a divorce. They were in foreclosure and had every intention of simply walking away from each other and the home and starting over again. Not an uncommon scenario, in fact in this economy is it extremely common. The number one reason for divorce is money and the number two is fidelity. Yep, people are more worried about who is paying for what than they are who is sleeping with who, but that is another blog entirely. So, as it turns out, the home is a 4 bed, 2 ½ bath at 2800 square feet. It is in one of the areas of Little Rock still moving, and is worth 160+ if it is the cutest house on the block. The problem is, that with three teenagers and no money the home is not the cutest on the block, in fact it needs a bit of TLC; about 10-15K worth of TLC. It will take just under $8000 to catch up the loan and they owe right at 90k. Now, part of their problem had to do with a variable rate mortgage (ARM) that went from 750 per month to 1200 per month. No problem there, we negotiated with the bank to bump it down to 750 for the next three years citing the economy, job issues the heart attack that the husband had, etc. They were happy to do it because…guess what…they don’t want the house back and were overjoyed to have the 8k! Our total commitment is 18k to 23k and our total potential on a straight retail sale is 160k-the 90k loan-15k repairs- 8k to buy out of foreclosure, which equals 47k profit; just over DOUBLING our money. Oh wait, want to see how we could triple our money? We could Lease Option the place at170k with 10k down and payments of 1150 per month. Now we make 400 per month over the next three years; another 14,400 bucks and all the while the owner/tenant is paying down the note. In three years say they have knocked it down to 85k. Our profit is then 10k down payment +14,4000 rent profit for three years + the 47k we talked about earlier + plus the 5k difference in the note that isn’t even in our name! $23,000 in, $76,400 out. Not bad for a crapped out economy, eh. Now guys, in an ideal world, the house would be totally pretty and we would do no work on it, and we would negotiate to just start payments back up with the bank, but I think I have shown with a REAL LIFE EXAMPLE that with a little ingenuity, and a bit of education, you can pretty much do anything you want in real estate; the only limits are your imagination and creativity. How do you think I know that?!
Al Susoeff, Jr. is a Real Estate Investor, Trainer, Coach, Author and Civil Engineer from Central Arkansas. You can read more of his articles at www.ASusoeff.com