[Rafael Vazquez]

Rafael Vazquez

Hello –

I have never done a subject-to deal before and I am wondering how folks that do subject-to deals calculate the equity a seller may have -if any- when structuring offers. I saw someone using some type of formula that sort of made sense but not completely.

The first thing they do is take off between 12-15 % of the ARV for Cost of Sale ie, (6% RE commissions, 5% negotiated discount, 3% closing costs, 1% miscellaneous). Then after that it looks like they subtract any repairs needed and that would be the equity they use to start the negotiations. With whatever number they come up with they then use that number to create multiple offers which I think is great.

Is that sort of what is used? Any other formulas or methods to calculate the equity?

Any feedback will be apprecaite it.

Thanks in advance,
Rafael

[Ben Souchek]

Ben Souchek

Hi Rafael,

The 12-15% for “transaction costs” that you mentioned is basically what I do for starters, then subtract the repairs needed, then create multiple offers.

I’m sure there are other ways to come up with the numbers, but those are typically the basics.

The other thing I look at is “quality” of the house (age, functional obsolescence, etc.), and salability of the house/neighborhood, etc.

Hope that helps,
Ben

[Rafael Vazquez]

Rafael Vazquez

Thanks for the feedback Ben!

Do you or anyone in the group ever turn around and assign a contract on a subject-to deal that you have? In other words, do you ever wholesale a subject-to deal to another investor?

I am thinking about possible exit strategies for subject-to deals. I know putting a tenant in the house and hold it for a while until you sell is one, a lease/option is another, having an end-buyer already lined up, etc. But these all usually will require some cash for a at least a few months until you find the tenat/optionee/buyer.

I guess if you don’t have the cash you could bring a partner or private investor? Hardmoney lender?

If wholesaling to another investor, I would think it should be someone you trust is going to make the payments and don’t screw the seller.

Any thoughts? Maybe I am looking at this too much….

Thanks in advance,
Rafael

[Ben Souchek]

Ben Souchek

Hi Rafael,

In regards to wholesaling a subject-to deal, short answer is I wouldn’t.

I realize with the right paperwork you may be able to protect yourself, but what happens when the person you wholesale it to then transfers the deed again? You have lost control of the deal and if anything goes wrong, your seller (or a judge) is going to look at your actions, not necessarily someone else’s.

With all the ways a person can make money with real estate, this is just not something I would do.

Ben

[DON WEDE]

DON WEDE

I agree with Ben. In a subject to deal I would want to stay in control. You pass it on to another party and it goes sideways your reputation may get damaged.
Don