I would like to take a moment to talk about one of the least talked about ways to purchase Real Estate, and also one of the BEST ways to purchase Real Estate, Buying Property "Subject To" first lets understand what it means.
"SUBJECT TO": Buying RE "Subject To" Simply stated: Your buying or taking control of a property "Subject To" the existing financing(mortgage or deed of trust) remaining in place in the sellers name.
Lets say that you recieved a call from a MOTIVATED seller, Mr.Seller he basically tells you that he MUST sell his house due to relocation from his job, and he has no time to list it with a realtor. Mr.Seller also tells you (through asking your probing questions) that he owe's about $100,000 on his mortgage, his payments are about $900.00 per month, including principal, interest, and taxes. Even though you are only just beginning Real Estate Investing, you know the estimated market value of Mr.Sellers home is about $130,000. hhhhmmmm, you smell a potential deal.
You rush over to Mr.Sellers home. It dosent matter in the least that you are just a novice real estate investor. After all, he needs to sell now. Your now sitting at his uuummm, kitchen table. Here is what you say. "Mr.Seller, i can take over your mortgage payments. I will start making them and continue making them every month until i get the house SOLD. This could take one month, or it could take years....theirs just no way to know for sure." "The ONLY promise that i can make is that i will make the mortgage payments no matter what. The mortgage will remain in your name the entire time, however long it takes. We can begin as soon as your ready to move."
Now obviously Mr.Seller asks if you can give him some of his equity in the form of CASH to help him with moving. After going back and fourth a couple of times, Mr.Seller and you agree on $3,000, which you will pay to Mr.Seller the day he moves out.
So, what do you have? You have a house with an estimated value of $130,000 that you will wind up paying about $103,000 for when all is said and done. You also have a payment of $900.00 per month. Since you don't have much CASH left, there's something you must do right away...you MUST start MARKETING for a Buyer.
So, you place an AD in your local newspaper, and put a few signs up in Mr.Seller's neighborhood: "LEASE TO OWN-Bad Credit O.K." That should get your phone ringing. After screening out a few Bad apples, you find a young couple with good jobs and strong income who went through a BRIEF period of financial trouble a year or two ago.
You offer to LEASE them the home with a 12 month OPTION TO BUY it. Their monthly payment will be around $1,200, and the purchase price will be $135,000. They will also give you a NON-REFUNDABLE OPTION FEE of $5,000. You have a monthly POSITIVE CASH FLOW of $300.00- the difference between the $900.00 you are paying Mr.Seller's mortgage company and the $1,200.00 the young couple is paying you. You have also put $2,000.00 CASH into your pocket right now- the difference between the $3,000.00 CASH you gave Mr.Seller and the $5,000.00 CASH the young couple gave you. When the young couple exercises their OPTION TO BUY, you will also pocket $32,000.00 CHA-CHING!
During the next 12 months while the young couple is LEASING the home from you, you will make contacts with potential lenders on their behalf. You should do EVERYTHING in your power to help them qualify for a mortgage so they can exercise their OPTION, when the time comes, YOUR HERO, SULLY.
YOUR HERO, SULLY