Question about Subject to/wrap strategy.

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  • Can you make money buying newer properties Subject to with little or no equity? The idea being that you could sell the property for above market with owner financing to someone who could otherwise not get a loan. The advantages- it would be a lot easier to get sellers to agree to the deal, and , the ability to buy newer homes with little or no need for repairs. Property could be sold with owner financing/wrap for 10% above market or a lease option. You could collect option money and a much higher selling price when the option is exercised in anticipation of appreciation and possible cash flow from monthly payments.

    HI Rich

    Theoretically, yes you could buy newer houses subject to the mortgage (with a wrap), then resell with seller financing. The primary concern I have is if (rather when), there is another real estate crash, the property could lose value really fast. If that happens, your buyers will likely bail out on the property and the payments. You’d be stuck with a house that has a mortgage that is more than the house is worth. And it would be impossible to resell the house for what you owe. You may be able to rent it out for enough to cover the mortgage payment but maybe not.

    This is why it is safer to buy subject-to properties below market. You have built in equity just in case….

    A much SAFER way to approach the newer home angle is to lease the house and get an option to buy with the right to renew the option again and again. You could even skip the Option to buy. Then you can just sublease the house for monthly cash flow or you could sell with a lease and an option that wraps your lease option. Have language in your Master Lease that you can get out of your lease with a 60 day or 90 day notice. If you set it up as a performance lease, then you only need to pay rent to the owner when you collect payments from your tenant.

    We have a LOT of training about doing Master Leasing in the Premium Members section.

    Jackie-thanks for the quick response. I hear what you’re saying about a possible market crash. I might be willing to take that risk, but you make a good point and you’ve got me thinking. I’ve done some pretty good deals in my time, but do not have the detailed knowledge you have, especially when it comes to these type of deals. I live in San Antono TX. Back about 10 years ago, I bought 7 acres of C3 land on a main Hwy. (Loop 1604) in partnership with 2 other business associates. We paid $3/sq. foot, To make a long story short, I netted $250,000 in about a year and a half. Also bought a pre construction oceanfront luxury condo in Hallandale Beach Fl. for a $90k profit, and another property in Port St. Lucie and netted around 30K.
    When the market crashed around 2007, I got murdered on a couple of other deals in Florida.
    The first house I bought in the late 70s in Laguna Beach CA, I bought on a lease option for $123,000. I had to sell it, made a little profit, Unfortunately I couldn’t hold on to it, that house is worth around 2 million :(. Most of those deals I did were simply buy low sell high, didn’t take a whole lot of rocket science.
    I will sign up for the premium membership later today.


    Sounds like you know all too well about market crashes unfortunately.

    Unless I can get in and out of a deal quickly – I always think “what if” there is a market crash. You can’t count on appreciation or economic conditions to always go up. So, I try to always structure deal with safety in mind first and profit second.

    buying newer homes subject-to with a wrap then reselling, can work for awhile but the cash flow would be really skinny and the upside potential would be too. If you sell the house with seller financing, you have already capped the profit potential in the deal – unless you get if back, then you could resell at a higher price assuming the market can bear a higher price.

    Another thing you could do with those newer homes is to just get an option on them, then sell with seller financing using a highest bidder sale for the highest down payment. Agree to split the down payment with the sellers. Then get out of the way. Get your half of the down payment then move on to the next deal. Rinse and repeat. This way, you never take title. It puts you our of harms way if there is a market crash – yet you could still make a nice profit on each house.

    People with newer homes and little equity, are in a tough situation if they need to sell. They would usually need to come to closing with CASH to pay real estate commissions and possibly the difference between what they sell for and what they owe on their mortgage. OUCH! If you approach them with an alternative that could actually put some money in their pocket, they would love this idea. You’ll need to do some explaining about keeping the mortgage in their name for awhile. Most will want to be cashed out within 3-5 years so you’ll need to make sure there is a balloon on the seller finance note.

    $5,000 here and $10,000 there, doing several a month can add up to nice profits.

    If they don’t want to sell with seller financing, come in with your offer to lease their house with the right to sub-lease.

    Always have a plan B just in case the seller says no to Plan A.

    Just thinking about what you said about a possible crash. That is an argument for selling subject to without the wrap.

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