Industry sign banking new york warranty deed online
hey there grant Kemp from Creative cashflow calm here today we're gonna talk about subject to the wonderful wonderful investing strategy that is subject to I love this strategy it has a lot of huge benefits for us and we're gonna go through some of those today so let's take a look one of the things that I want to clear up about sub 2 is that it is not an assumption okay a lot of times you might broach the subject to topic and somebody though yeah assuming Maloney I know all about that this isn't an assumption to assume a loan means that hey I want to buy Joe's house Joe owns or owes the bank $80,000 at Bank of America so I am gonna go sit at Bank of America give them my taxes give them all of my underwriting stuff and they're gonna approve me put my name on the loan take Joe's name off that's an assumption okay that's not what's happening here this is not a lease option lease options imply that you're not going to take title from day one a lease option says that you have a period of time where you're just leasing the period and that leasing the the property and at that point once your lease period is done you have the option to purchase the house according to some terms that you came up with with your seller at the beginning okay so this is not a lease option in subject - you are taking title to the property immediately from day one you become the owner all right this is an acquisition model if you sell with sub - you've left a lot of money on the table okay subject 2 is a great way to buy houses in our basics video that if you haven't watched that yet and you're kind of getting lost on some of the verbage inside that kind of thing go ahead and go back and watch that but our basics video we talked about owner financing is a a blanket term owner financing is an umbrella term that says there's multiple things inside of it right subject to is one of the strategies subject 2 is one of the ways that you can use owner financing well subject 2 is an acquisition strategy it's a way for you to get into the property because with subject - you're essentially taking over on payments now subject 2 is short for the phrase I will buy your house subject to the underlying lien staying in place as is okay in other words yes I'm gonna buy your house you're gonna deed the property over to me and I I'm gonna continue making those payments to Bank of America for you so even though the loan is gonna stay in place even the loan the loan is gonna have Joe homeowners name on it in perpetuity the actual payment is coming out of your bank account the actual payment going to Bank of America is coming from you that's subject to your kind of taking over on payments now the reason why and I've mentioned this in several of the videos that I don't encourage you to say taking over on payments is that people here take over on payments and they hear assumption they hear loan assumption and loan assumption implies that they as the seller are having some of their responsibilities removed and we do not want to imply that we don't want to give them the impression that at the end of the day they are not still liable on the loan because they are right that's part of the key here is that they still have their name on the loan they are still the ones that if a foreclosure hits from the bank it's still gonna be their name that gets hit on that it's gonna be their credit that gets affected now the flip side of it is is as you're making payments on time and moving forward that's actually helping their credit that's showing that payments are being made on there but you know on their credit report for this mortgage and as long as they're making it on time like you should be that's actually gonna help them out so it's kind of a double-edged sword one side is bad one side is good and you can use that in your negotiations I encourage you to watch our negotiations videos there's gonna be a series there of different types of negotiations and how you can get people to say yes this is gonna be kind of new to a lot of people the subject to strategy is a little bit different right and it's gonna be a little bit of a mind-meld that occurs around this strategy but I want you to understand that once you get this once you're really trucking with it it's not that hard to get people to agree to I know I know because I talked to a lot of people and I train a lot of people how to do this business one of the first things you're gonna do after I tell you about this is like yeah but whoever would do that trust me I do this all the time I mean I go through times where I'm buying five six seven of these a month and people are saying yes and they're happy about it and they're thanking me at closing so don't think that they're not out there don't think the sellers where this works for them don't exist because they do exist just because you can't see yourself doing it doesn't mean that other people won't right so that in that by the way is just a great Koshien tip in general is you always have to be looking at things from your sellers point of view that being said I won't ask you a question what makes a deal a deal what makes a deal a deal a lot of times my response is gonna be oh well it's got to be a 70 cent purchase and you know I want a three-bedroom house I want it to be brick it needs to be at least 1989 or newer and bla bla bla bla bla bla bla you want to know what makes a deal a deal as a willing seller somebody who wants to sell their house that's what makes a deal a deal if you have the strategies that I'm gonna teach you through this series especially with subject to and owner financing if you have those in your belt you have the ability to buy any house if you've got somebody that wants to sell a house you've got a way to buy that house and that's one of the huge great benefits to subject 2 because you start looking at subject 2 like that and it it it leaves you open to all of these wonderful possibilities with sub 2 you're able to buy it hi el TV's your loan-to-value can be a hundred percent your loan-to-value can be a hundred five percent and why is that well if you've watched our backing into the the deal video where we're learning how to to figure out what's what the offer is going to be you'll understand that hey when you're buying a house for cash you're putting cash on the line right there's a risk involved with that well if you're buying subject-to if you're if you're again taking over on somebody's payments what is he what is your risk really you've risked a signature on a piece of paper you haven't risked eighty thousand dollars out of your back pocket right so it allows you by using the strategies that we're gonna talk about by backing into the deal by looking at the deal in this different way it allows you to understand that hey maybe LTV isn't the only thing here right maybe there's a possibility for me to make a ton of money even though I'm buying at ninety cents and there is and subject to is that answer financing this is built in unlimited non-institutionalized non-recourse lending how much better can it get all you have to do is sit across the table from somebody know what you're talking about have them sign the contract and you're good you've got your lending in place know going to a bank know showing a banker all your taxes know having to go through all of those those dad's hoping for approval and all that kind of stuff you just get your seller to say yes you get your sellers to say yes to selling you the house you get your seller to say yes to take an installment payments and your good disposition one of the beauties of subject 2 is again this is an acquisition model this is a way that you buy properties right so if you buy with subject 2 nothing says that you can't rent that property nothing says that you can't go out and wholesale it nothing says that you can't flip it fix and flip it whatever I like to talk about buying with owner financing and selling with owner financing I like if I buy a house with owner financing I sell it with owner financing however mentioned before I've just bought a house where I bought it with subject 2 because it's a little bit larger out of an LTV bought it was subject to I'm gonna put very little money into it I'm gonna stick it up on the open retail market I'm gonna make about thirty thirty five thousand dollars on it right that's a possibility as well that's one of the great things that's subject to it's a purely acquisition 'el it's fast and it's cheap you're gonna close this deal through an attorney's office right you don't have to go through the title company you don't have to do any of those steps you can get it closed out really quickly by going through the attorney's office one of the things that I'll mention here is I don't get title insurances when policies whenever I'm buying subject to write I still do a title search still getting the title run done by that by the the law firm and looking to make sure that everything is clear on there but what I'm not doing is I'm not paying for a title policy that says that if they miss something that the title company's gonna take care of it right because take an evaluation of everybody that you know that's ever bought a title policy and try to figure out how many of those people have ever actually used the title policy the likelihood of getting used is extremely slim now I want to I want to throw out my disclaimer here if you are uncomfortable with this you know the safest step without a doubt the safest move here get the title policy I don't want to encourage you not to get the title policy and then have something come up where it bites you and then you're mad at means they won't write told me not to get this that's not what I'm doing here I'm just saying for my own portfolio I don't bite on policies whenever I'm buying subject to a title policy largely is there to protect you right Tonto policy says that if the title company missed something on the title on the title search and this lien comes up later on down the road that the time company is gonna pay for that right so when I do get title policies its cash deal if I'm buying a deal with cash and I'm putting up seventy eighty ninety one hundred and fifty thousand dollars yeah I'm gonna get a title policy because I want to make sure that my money that I put up my cash that I put up is protected that no lien is gonna pop up and I'm gonna have to pay extra money for it's gonna invalidate my deal or anything like that but with subject-to I'm not putting up a lot of cash I might be putting up twenty thousand thirty thousand dollars max on a subject to deal that's not that much money well when a title policy is hovering a thousand dollars and you're doing four or five six seven andis a month at seven thousand dollars a month the likelihood of a title policy deal coming back that you actually need the title policy to cover this lien on is very slim the likelihood of needing them to cover a lien that's more than seven eight nine ten thousand dollars is even slimmer right so for me for my own portfolio I don't buy the policy and if something ever popped up I just pay it and I'm still spending less money that way than having purchased title policies on every single deal that I'm doing and again it's because we're not putting a bunch of cash on the line same reason we're able to buy it the high L TVs you can get a great homestead like this actually the house that I live in right now I bought subject 2 and I walked into it with over a hundred thousand dollars worth of equity 110 thousand hundred thousand dollars worth of equity just as I walked in after closing right because I knew how to do subject 2 and I knew how to meet my sellers needs I was able to wade through there once meet their needs and get a deal that worked for everybody ok let's talk about a little bit of this commercial versus consumer law ok these when you're buying properties this way are commercial transactions subject to when you're buying a property subject to that is a commercial transaction a commercial transaction means that you're doing this is part of business right you're not planning to move in and live in that property that's what separates out a commercial transaction from a consumer transaction a consumer transaction is defined as u buying a property as a residence so when we sell the B's properties when we sell them to our end buyer that's a consumer transaction because there's gonna be somebody that ends up moving in right but when we're buying it that transaction itself we're not moving in its commercial law the nice thing about commercial law is that really it enables us to do pretty much anything we want right commercial law is very lenient for us because thankfully they say look if this person can afford to do business this way if this is it part of their business maybe they can accept the risks of what's going on so there's a lot of things that you have to do on the consumer side that you don't have to do on the commercial side for instance when you're acquiring the property dodd-frank doesn't apply okay you can watch our separate dodd-frank videos to learn a little bit more about what does and doesn't have to happen with dodd-frank as most of you know I'm a licensed RM ello nationally have read dodd-frank from front to back which I don't think that mr. Dodd or mr. Frank have even done but I think it's really important for us to know the boundaries of what we are and are allowed to do one of those being consumer law we've got to do a bunch of stuff when we're putting a buyer in there that's gonna live in the property we need to go through a lot of steps to make sure that we're doing it the right way and that we're protected ultimately when we're acquiring the property none of that applies to us let's look a little bit about who our seller is who's our seller so two leads are found and all the same list that you've already been marketing to that's one of the things that you know I get a lot of people that say oh well where do you find these subject two leads and what are you what are you even doing to get this lead look I'm I'm marketing to the same list you are I'm just buying houses that you're not over 80% of the deals that I've closed have come from wholesalers other investors in the market that don't know how to buy with subject 2 and what will happen is they'll run into a deal and I tell them I'm like look you run into deals where they owe too much but they want to sell you the house come talk to me well partner up I'll get you paid at the end of the day it's a it's a deal that you were gonna be throwing away anyway and we'll turn it into money and a lot of my deals come that way because I'm the guy watch this video series watch all the way through learn how to do this become the guy become the girl in your area that knows how to close these low equity loans or these low equity deals and you can really expand your portfolio that way and make good money foreclosures are probably my favorite right foreclosures are like shooting fish in a barrel foreclosures are great but the hard part about foreclosures is that when somebody's going into a foreclosure they're typically six months behind as a matter of fact dodd-frank one of the things that it laid out so anything that's gonna be hitting after 2014 any loan that was taken out after 2014 as part of this law where they have to be a hundred and eighty days late before the bank can even think about starting foreclosure so with that being said we know that there's six months behind anytime they're going into a foreclosure scenario well if that's a thousand dollars a month at six thousand dollars behind before attorneys fees even pop in right so as you're buying these foreclosure leads every one of them you're having to put six thousand bucks up upfront to pull them out of that auction and you do that two three four times a month that capital starts to add up now that's where it becomes beneficial to talk about private money and all that kind of stuff and you can watch our private money video to to figure out a little bit more about how you can work private money to get this second lien position in place because I'll tell you right now you know whenever I'm buying deals if I've got somebody that's behind on payments eight thousand bucks a
d then I need to put twenty thousand dollars into rehab that's twenty eight thousand dollars well I go to one of my private lenders and I say hey I need twenty eight thousand dollars to make this deal work and I pay them interest I just leverage it out and I use that as part of my deal when I'm backing into my deal watch the backing into the deal video so that you understand how to properly analyze and and and acquire a property but I use those terms I know what my private money is gonna charge that becomes one of the expenses that I use when I back into the deal and then I purchase right so it's all factored in and I've all I've got it all worked out to where I'm still gonna make the money that I want to make right so that's one thing to look into on that video well yeah foreclosures I love foreclosures one of the things that I hate that propely o does for you that I legitimately have beat Daniel up over and over again is that he gives you some great leads one of those being the appointment of substitute trustee this was one of my private lists this was the list that we got that nobody else did right and now it's being given away for free that is a great acquisition for foreclosures load of no equity I've mentioned this a couple of times houses where they might owe 85 percent or 90 percent something like that those are still deals you can make a ton of money on so start networking start talking to all the people in your market be the person that knows how to close this deal right watch this series really figure it out really know what you're doing and then go present yourself as such and you'll get leads divorce divorce is always a good area you know divorce is always how many times do you hear somebody say that divorce is always a good area divorce is a great lead source I'll put it that way divorces you know when people are looking to get rid of the house and they're just done you know you hear the person say I'm just done with it I'm stunned I just want to get out that's a great lead I'll tell you right now a phrase that you want to look for any any seller that uses any kind of imagery that says I want out from underneath this house I just feel like this loan is just weighing on top of me any kind of imagery that says that they're underneath this house or this loan that's a subject to deal and you need to buy that house right so you run into that a lot with divorce they're just done just want to get out from it I just died I'm ready to let it go back to the bank that's a phrase you buy that house subject to okay making homes this house is just sitting there costing money right why not sell it why not let me make those payments for you instead so these are all great lead sources that you can buy subject to homes from to really fully understand sub 2 we had to have to understand the traditional bank financing model let's take a look at that in a traditional bank financing model we've got a home here right and this home is owned by Joe and Betty and they've got it for sale well they still have a loan to their underlying lender that you well you're gonna see me abbreviate underlying lender that way this is the bank that they own a morning mortgage to so they owe money to the underlying lender they own this house then they've got it for sale well they put it for sale and this buyer comes in the buyer wants to buy it so they talked to Joe and Betty and they say I would love to buy your house Joe and Betty say cool that's excellent so what does the buyer do the buyer goes and talks to their bank and the buyer goes and gets approved by their banker sits down in front of them gives them all their financial information and says this is what makes me qualified to buy this house banker says ok that's cool I'm good with that so Joe and Betty and buyer they go under contract they bring a title company into the story title company gets involved closes the deal Joe and Betty sign a warranty deed to the buyer buyer now becomes the owner of the house right because they have the warranty at that point in time something else gets signed a mortgage in Texas it's a note and a deed of trust that we use to get this in other states it's just it's called a mortgage so now the buyer has a mortgage to the bank has the warranty deed to the property the banker comes up with the cash sends the cash over to the title company and the title company funds the deal the title company gives the bank the underlying lender whatever still owed to them and whatever is left over after that goes to our sellers right so at that point in time sellers are out of the picture now our buyer owns the house with a warranty deed and owes a mortgage to their bank pretty easy to understand right we all understand how the the standard banking model works so now let's take a minute and let's look at how the subject to model fits in right so let's look back at our picture before right we've got our seller who warranty deeds it over to our buyer our buyer has a loan to the bank but was subject to this bank doesn't exist right subject to we don't have to go get financing the buyer doesn't have to go get financing subject to the buyer is gonna take advantage of the financing from right here the buyers gonna take advantage of that financing between the underlying lender and the seller so let's dive a little bit deeper into this picture let's zoom in a little bit there what's gonna happen with subject 2 is the seller is still gonna have a mortgage in deed of trust to their underlying bank the seller is going to give a warranty deed to the buyer right that's what gives the buyer ownership of the home the buyer has possession and ownership of the home because of this right here this warranty deed that was given to them from the seller but what the buyer does not do okay and we're going to say you're the buyer so what you don't do and a subject to purchase is you are not bringing the title company in bringing the bank in getting all the money paid off and paying off the underlying loan that's not what's happening the underlying loan is going to stay in place as is that mortgage and note and deed a trust that's in there between the seller and the underlying lender that stays just as is the buyer is gonna make a monthly payment on the sellers behalf to that underlying lender okay so that's the phrase I want to use I don't want you to say that we're taking over on payments I want you to say that you are paying every month on the sellers behalf because again we don't want the implication that the seller does not have any responsibilities in there they do so let's look back here let's just go back over this alright the seller has the note and deed of trust to the bank they deed the house to the buyer the buyer makes monthly payments on the sellers behalf and as protection for the seller the buyer gives the seller a deed of trust to secure performance okay let's talk a little bit about what these documents are we've talked about a warranty deed we've talked about a deed of trust now I've thrown in a deed of trust to secure performance but I'm just gonna call that a deed of trust as well right now it's basically the same thing very slight difference the warranty deed is what actually gives ownership to a property okay the warranty deed is the thing that says this person owns this house right that's the that's the the job of the warranty deed the deed of trust is the document that's signed between the buyer and the lender and the deed of trust says look there's a note involved in this right there's a note that says that the buyer let's say that their name is Jo Jo and Betty I'm sorry the sellers are Jo and Betty well Jo and Betty owed the underlying lender Bank of America $80,000 for 20 more years okay that's a note the note says you owe Bank of America eighty thousand dollars for 20 years at four and a half percent that's all that's included there the deed of trust is a separate document where the Sun the the seller Jo and Betty signed it back to the bank and said look in this document I'm acknowledging that you gave me a note for 80 thousand dollars 20 years four and a half percent and I'm telling you that if I don't pay that note you get to foreclose on me that's what the deed of trust is the deed of trust is the instrument that allows the bank or the lender to foreclose on the person being lent to okay so you're gonna see positions in there called a grantor and a grantee and the deed of trust the grantor is the seller they are saying hey Bank grantee I am giving you a document that says that if I don't pay like I said I was gonna pay you get to foreclose on me okay now by the way in that deed of trust when they initially sign it there's gonna be a position in there called the trustee now the trustee is who the bank is gonna say we'll do the foreclosure if it comes down to that the trustee is the person the the lawyer that's actually gonna perform that foreclosure so you know a lot of times you've got a big law firm where they may just put one of the partners in there and say okay well this law firm is gonna do the do the foreclosure for us or they put a lawyer in there that's working it well three four or five years down the line that lawyer may not be there or it may be a partner what has to happen is the person who's actually going to do the foreclosure has to be on that deed of trust so that's where you run into the appointment of substitute trustee right it's one of the great lists that you get out of propely oh is that whenever they the bank are deciding ham and a foreclose on this person I'm gonna I'm gonna actually take the activity that this deed of trust says I can do I'm gonna do that foreclosure the bank or I'm sorry the law firm that's gonna handle that one of the first steps I've got to do it they've gotta say who was the trustee on this document oh it was Joe well he now he works for some other law firm so we need to put somebody else in here so they're going to file an appointment of substitute trustee to make that new trustee the actual foreclosing entity and that's what triggers that that lead for you so that's just a good tip on where these are coming from now we've got a deed of trust and a note between Joe and Betty and the underlying lender here well that means that the underlying lender is protected right if that mortgage doesn't get paid the underlying lender gets to foreclose and either get the property back or get their money from the auction but what's protecting Joe and Betty that's the question what's protecting Joe and Betty so that's where the note or I'm sorry that's where the deed of trust is secure performance comes to play you as the investor are going to sign another deed of trust to Joe and Betty the sellers that says hey I told you that I was gonna pay your loan on your behalf right you're gonna use the phrase you're paying on somebody else are on the sellers behalf right so I told you I was gonna pay on your behalf every month and if I don't do that you get to foreclose and take this property back from me that's why this is a deed of trust to secure performance because this deed of trust is not securing what you said would happen in a note you're not getting a note from Joe and Betty what you are getting is that or what you are giving them is a promise to perform so the D TSP the deed of trust to secure performance says if I don't perform as I said I was going to perform you get to foreclose and get the property back from me that being said I want to look at this a little bit differently okay I'm gonna change this picture up a little bit now again just to go back over one last time you have position of an ownership of the property you're making monthly payments on the sellers behalf you've left the mortgage the note and deed of trust alone just as it was from the start Joe and Betty's name remain on it but you're paying it every month Joe and Betty gave you warranty deed which is gave what gives you this ownership and in return you give them a DTS P that secures performance the way I want it to be outlined here though is I want you to look at it this way that mortgage that Joe and Betty have with their underlying lender that's first lien position that mortgage is the one that has the ultimate saying what's happening because it was recorded before this transaction ever occurred between you and sellers when you agreed to pay those monthly payments and you get a warranty deed from Joe and Betty and you give them a deed of trust to secure performance back that is a subordinate lien that's a second lien position I want you to go back and watch the the understanding of the basics videos to understand a little bit more about lien and why that matters because it's very important in this world to understand subordinate versus first lien position but this is this is outlining your bank loan between the sellers and their bank is the primary loan if that loan does not get paid and that loan forecloses your stuff is wiped out you're done so it is imperative that you do everything that you can do to keep that loan performing even if you're not making income on that property not only ethically is it good is it good for you to continue making that loan perform because by the way Joe and Betty have trusted that you're gonna do what you said you were gonna do right so I stress so much do what you're say you're gonna do if you've got this house and this lead in front of you and you're gonna buy it subject to know that there may come a time where you have to float that bill for four or five six months there may be a time where you have to make that payment and you don't have any income coming in at the end of the day you're gonna make it back you're gonna make a lot more money ideally but you may have to come up with that money so if you don't that foreclosure occurs well not only do you now lose your asset which by the way finding the asset is the hard part but you've also kind of screwed over Joe and Betty because that loan is in their name okay now they have a foreclosure on their record so it's really important that you don't do that to them it's really important that you do the right thing and try and keep this stuff performing however let me step off to the side here to everything is a double-edge right everything has a positive and a negative well that's that's one side of it but what's the positive the positive here is again ethically and morally it's in our you know we it's our duty to do this the right way and make sure that everything's performing but legally from a legal standpoint the only thing that matters at the end of the day is what's in paper right that's why it's so important to get good contract it's so important to deal with people that actually know what they're doing with subject - with owner financing specifically that it's their niche that they understand right your attorneys your rml oh that kind of stuff you want them to understand what's going on because when you have it like this okay if a foreclosure did occur what did I say before it's gonna affect Joe and Betty what did I not say it did not say it's gonna affect you because from a purely paperwork standpoint you don't have recourse on this deal it's part of the equation when I say that this is non institutionalized non-recourse funding foreclosure occurs goes against your company you should never sign anything personally on any of these deals right you should have it all going through your LLC all signed as a member of your LLC so that is not going to affect you but again we just need to understand that your your agreeing your agreement with the sellers is subordinate to their agreement with the underlying lender furthermore once we get into the wraparound scenario which you should watch the wraparound video which will be coming up next that will explain how you can make this into a lot of money and that deal is actually gonna be subordinate to even that they're actually in technically a third lien position okay the important thing to take away from this with the liens is that the only thing that matters the only thing that affects lien position is date and time of filing if you file first you're in first lien position the file second you're in second lien position and anybody that comes after you gets wiped in the
vent of your foreclosure which we need to be assured that we are aware of because again if our first lien four closes we're wiped everything that we've done is gone so we need to be aware of that what's a risk what's a risk in the duan sailcloth I'm sorry what's a risk in the the owner finance sub to world it's the due on sale clause the due on sale clause is gonna be the one risk that you're really taking right now we deem this risk is very my new my office is seen over 10,000 of these deals get done over the previous 30 years and we've seen under 10 do on sale clauses get called they absolutely can get called the due on sale clause is absolutely out there and can be called but real-world scenario we just typically aren't seeing it get called historically speaking as long as that loan is being taken care of the way that it should be getting taken care of the do on sale clauses typically aren't getting called that said it's very important that you properly disclosed that it exists to everybody involved in the transaction and the due on sale clause and short all it says is that when somebody sells their property okay when Joe and Betty sell their property Bank of America has the right to ask for whatever money was due to Bank of America still to get paid off at that point in time so earlier I mentioned Joe and Betty owed $80,000 for 20 more years right well our agreement in the subject to world was we're gonna buy the house and we're gonna continue making those payments for the next 20 years Bank of America absolutely has the right from the moment that we closed on that deal to say hey Joe and Betty you just sold that house pay me $80,000 it's part of the deal now I'm not gonna go into deep detail what to do on sale clause because we do have a due on sale clause video that you should watch so watch all about that because I'm gonna talk about how to address this during your negotiations I'm gonna talk about the things that you do and don't need to say I'll tell you right now I haven't had anybody refused to do a deal because of due on sale clause since probably the first eight months of working in this business once you kind of understand what's happening with it how to broach the topic how to properly announce it to people being completely honest letting them know exactly what's going on but just understanding how to approach the situation it becomes a non-issue right so it's important to really get the ins and outs of that watch the do on sale clauses video so let's take an example here let's look at our typical deal our typical deal is gonna be somewhere between a hundred and hundred and fifty thousand dollars you know I'm in the Dallas Market so one hundred one hundred fifty thousand dollar house is gonna be very different from one hundred and fifty thousand dollar house in California or in New York but that's where I'm working right here it's kind of that low to moderate and housing it's not low-end right you're still getting a brick house that's maybe built in the 80s and it's not in the greatest part of town but it's pretty good right low to moderate income housing most typically they're gonna be around eight thousand dollars behind if they're behind somewhere between four and eight thousand dollars to what we're looking at there's typically gonna be somewhere in this 12 to 8 or I'm sorry 12 to 15 thousand dollar rehab that could or should go into it now I will say I bought a lot of houses that I didn't have to do any rehab to I literally took over on the sold it to somebody else without doing anything to it started making a bunch of money I liked those houses but you should also be prepared for needing to go in there and get some work done I basically run into several categories of rehab that are needed on these subject 2 houses here I have nothing that needs to get done or I've got yeah three to five thousand dollars worth of work which basically means like hey I need to touch up some paint over here throw some carpet in over here you know little things or we're kind of in that ten to fifteen thousand dollar range where there's a little bit more actual you know issues that need to really be done and rehabbed or I'm going in and doing a full-blown rehab which typically costs about thirty okay so that's kind of you know categories that we run into in in this in this industry and then seventy-five thousand dollars owed that's kind of again it's it's kind of all over the place but again if I'm looking at averages here I'm kind of looking at my basic deal that deal where they owe seventy-five on it is great they're so they're typically gonna go somewhere between 75 and 120 you know most of the time they're in the 80% range in that eighty to ninety percent range of their of their owe versus what the house is worth and that's okay that's where we shine that's where we really make our money right one of the things to know is all your rules rules of thumb guys the owner financing world and the subject to world is different right we're looking at things a little bit differently it's not quite as easy as saying I buy houses at 75 cents it's not quite as easy as that because there's a lot to consider we've got for download the creative cash flow calm whetstone which helps you sharpen your skills and really run through a lot of different scenarios and that kind of stuff and work things on your own Asst I encourage you to download that and and really start to use it right so that you can kind of see the full situation and understand that things that conventionally may not have made sense buying at 87 cents or whatever that might be can make a lot of sense with the owner financing our lives are ruled by rules of thumb in our video series later you're gonna have a whole section about rules of thumb and and how to apply them and how not to apply them and just understand that every situation is a little bit different and sometimes you're gonna break a rule of thumb because something else makes sense for instance real quick example my rule of thumb is I want to collect $50 minimum cash flow per asset that I buy okay well why might I break that rule of thumb what if I've got a house that has 80 thousand dollars worth of equity in it but I'm only gonna make a hundred thousand buck I'm sorry a hundred dollars a month well of course it's okay with me to make a hundred dollars a month to have 80 thousand dollars in equity course that just makes sense right we've never passed that deal because well you didn't hit my 150 I'm not gonna take that eighty thousand because there's so much I can do with that eighty thousand dollars in equity that's a nice little nest egg there I can sell the note later and cash out make a big amount what if I sell it to that person and I've got $80,000 worth of equity and by the way when I'm speaking equity terms and I'm speaking and owner financing in this world what I'm saying is that the difference between what's owed to the underlying lender to Joe and Betty's Bank the difference between that and my loan or sales price to my end buyer that's what I'm considering equity so if Joe and Betty owed 30 and you know the house was worth a hundred I sell it for a hundred take ten to ten thousand dollars down have a 90 thousand dollar note I'm gonna have sixty thousand dollars in equity that's what I would call it at that point time now the nice thing here is what if my seller what am I in buyer I said my seller I'm sorry correct that what am I in buyer that I've sold it to goes out and they sell the property or they refinance well they have a mortgage to me they have a note to me for not a further 90 thousand dollars so I'm gonna get a check in the mail for the difference between what's owed to Joe and Betty's Bank and what's owed to me and in this case with that equity there I'm making sixty grand without having to do anything I've had it happen guys I actually just got notified yesterday I'm gonna be making $45,000 in ten more days because somebody's refinancing their mortgage on a house that I had a lot of equity on and I'm actually gonna be making closer to eighty thousand dollars but I was partnered with somebody who brought this deal in and because of our agreement they're gonna walk away with a bunch of cash - right so equity is nice that's a reason why you might break the rule of thumb on cashflow but watch our videos on Unruh love thumb figure out how to really analyze a deal like this because it is different it is different than the cash game what are our keys to success here one of the things that I like to point out is that even though you commonly absolutely 100% can get into a house without any cash out of pocket it's your responsibility to know that you should be able to cover those expenses if they pop up now I'm not gonna say that you can't buy houses without any money I used to actually market that a lot I used to say this is a great great strategy to buy houses without any money but Daniel one day pointed out a really good point to me he's like man you know he's pointing out a deal that I'm working on right now with actually one of his employees from from propely oh it's sat on the market for a long time now it was kind of a strange deal to begin with and it's in an area of town that's just not good for owner financing it's sat for a long time and we had to go through lawsuits with the seller because they decided to go south on us and just all kinds of crazy stuff well I've had to float a lot of money to make that deal work if I didn't have a lot of money to float that with that would have hurt the deal right we wouldn't have been able to complete that deal so I do like touting okay you can do these deals without any cash because you can my first 50 60 70 deals that I did I didn't put any money into them at all because I was playing playing the game leveraging arbitrage all this kind of stuff that you can put these pieces together but again it is responsible to have an exit it is responsible to know that if expenses are going to pop up on this loan you're gonna be able to take care of them another key to success is good contracts I can't stress this enough you've really got to work with attorneys that know what they're doing yeah I've mentioned this in other videos but I'll say it again you know you can't just go and pay 350 bucks to some attorney who's gonna give you a note and a deed of trust to close this owner finance deal there's a lot more to that in subject 2 there's a lot of things that you need to consider so you really need to work with an attorney who's familiar specifically with sub 2 so what you want to do is you want to go to your investor club meetings and ask around because typically every market has the guy every market has somebody that's good at that specifically so find what other people are doing you'll be able to figure that out honesty I can't stress this enough only promise what you can perform this is a little bit different of a strategy this is something where you've got a lot of moving parts to it and it's really important to that you only promise what you can perform because once you start going in there and you start negotiating you start all these wonderful things that can't happen and bla bla bla bla bla well you never ever ever want to sweep anything under the rug so it's very important that nothing gets sweep Tunder the rug or swept swept under the rug and that you're properly disclosing everything our motto and my company is disclosed disclose disclose we want to make sure that everything is properly disclosed cuz here's the thing there is a risk the do on sale is a risk to your seller if the seller goes into this transaction and does not understand that you've messed up and it's your fault if something goes wrong however and actually it's add on to that I would add it's unethical for you to close that deal because you've not properly disclosed the full situation to your seller however if you've properly disclosed everything that could happen all the positives all the negatives granted you know there's there's different ways to say things you can say things in ways that make it sound good you can say things in ways that are gonna make it sound terrible right we're not gonna do that but as long as everybody understands what they're getting into and they still decide to move forward and they're making informed decisions everything's fair game at that point in time it's all good right so disclose make sure that people understand what's going on one of the common questions you're going to receive from your seller is can I buy another house right if I sell you this home subject - can I buy another house can I get another loan I'll tell you this my sellers have had no issues with that okay this is one of those areas where only promising what you can do is big right it's entirely up to the new underwriter it's entirely up to their new bank whoever they're trying to get that loan from that's gonna be the person that makes the decision on whether or not they're okay with the fact that this seller has another loan that they allowed you to take over sub - right that's gonna be up to them but again as long as you don't promise something you can't control and you speak to them from a historical standpoint that says hey historically speaking I haven't seen this be an issue then we're good I'll tell you I'll tell you my experience it used to be that the the new loan or I'm sorry the new lender would count about a third of whatever the subject to loan was against your sellers DTI okay so let's let's break that out a little bit right so Jo and Betty they sell you the house subject to your taking over on pain it's those payments are going to Wells Fargo Joe and Betty want to buy a new house they go to Bank of America let's say that your payments - or the Joe and Betty's payments - bank of him to Wells Fargo were 900 bucks well historically several years ago it used to be that the new loan Bank of America that Joe and Betty went to they would say hey you've got a loan out there - Wells for $900 a month therefore I'm gonna count $300 a month against your debt to income ratio for the first year after doing the subject to transaction after there was a year of seasoning of time proving that this was getting paid off as it was supposed to be then it would drop down and they wouldn't count any of it towards the debt to income ratio well here about 2 or 3 years ago I saw a shift where at this point in time Joe and Betty tries to get a new loan from Bank of America I or my staff step in well it's I say hi my staff steps in and provides all of the the closing documents that showed that my company is now taking over on those payments that I've been paying those payments to Wells Fargo and it hasn't been Joe and Betty paying those payment payments we show them the HUD we show them the deed of trust to secure performance and the new bank Bank of America says oh ok cool we understand that it's not Joe and Betty's responsibility so we're not gonna count any of this towards their debt to income ratio that's the way that I've been seeing it handled for the past three years or so I've seen people get loans the same month as selling me a house with owner financing no seasoning involved on my side with the subject to transaction and go and get a new loan and not have any of the sub to loan counted against them so that's what we've seen but when you're talking about this to sellers just pros it is something that you've seen historically do not promise what's going to happen to them in the future because you don't have control over that watch the negotiation series for a little bit more tips on how to approach this scenario I'm huge on phraseology so I'm huge on saying the right words in the right order it's like we're we're renters right like we're saying spell we gotta say the right words in the right order to get a result right so that's how negotiations are we have say things the right way so watch our negotiation series I'll brock i'll walk you through all of this kind of stuff let's show me the money right once you've acquired subject to i've talked about this several times you can exit whichever way you want go watch our wraparound video it's one of my favorite ways to dispose of a property that i bought was subject to is to do
what's called a wraparound mortgage and we'll explain that in full detail in that wraparound video but i'm gonna give you a short little peek into it on a hundred thousand dollar house where they owe 80 grand on it your net profits by using a wraparound are gonna be about a hundred and forty two thousand dollars and that's with using zero money out of your pocket that's with doing zero repairs and zero hassles during your income period right there's some caveats to that time value of money being one of those however even like i say all the time you knock a third of that off you're still making basically six figures off of a deal that only had twenty thousand dollars in equity to begin with so watch our wraparound video to see how you can turn a deal with no money barely any equity at all and almost one hundred and fifty thousand dollars okay guys don't forget to follow us don't forget to Like us don't forget to subscribe get all of the new updates we're doing a full series here right so I want you to understand that I'm not holding back any punches I'm showing you exactly how I've done this business to get to the point where I am in my career today it's a great wonderful business don't forget to subscribe and we will see you on the next video
