The typical sub2 deal involves having a seller deed the property to you while leaving the existing mortgage in place. This can also be called a "wrap around loan". There is no “formal” assumption of the loan, you just start making the payments. There are many variations to this type of deal and as many ways to “take one down” as there are investors doing it. We will cover it all right here.
Subject 2, The Good, The Bad, and The Ugly
The “sub2” method is one of my personal favorite ways of buying property. It is fast, simple, and for me, relatively easy to negotiate with my seller. Is it without risk? NO! It is a fantastic method of acquiring real estate but it must be done responsibly and with the proper education.
Get Them to Give You the Deed
This is a great way to build a portfolio for long term cash flow. Think about it, who gets better rates on a mortgage than a homeowner? As I write this, a homeowner with good credit can get a fixed-rate mortgage for about 6 ½% interest! Imagine having your rental portfolio full of those!
Maybe you are not into the rental scene (me either) but still want long-term cash flow without the management headaches. My exit strategy on most of my deals is to sell them with owner financing. Imagine 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.
How many of those do you need to give up the day job?
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