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Is anyone doing sub to’s these days? I have a deal we are working on with the seller. Here is how it pans out. The home is in a nice area and values are holding very well. This is in the medium price range for the area. The house is worth $ 230K. the loan balance which we will take over is $212K there is two loans on the home and both are fixed rate loans.
The kicker is the payments are $1800 and the place is rented for $1400.00 this would give a negative cash flow of $400.
We are looking to hold this long term. The seller will get $2500 cash at closing and the seller will have to make payments to us for $400 to cover the negative cash flow for a year.
My concern is after the year we would have to pay the $400
I open to all suggestions on how else to structure the deal or possible exit strategies. There is a renter in the home for the next 11 months.
PASS ON THIS DEAL!
You don’t ever want to go in to a deal with negative cash flow – especially not that much.
No doubt the 2nd lien is a high interest rate and that is driving up the payment.
And there is really NO EQUITY in this deal. It may be worth $230l now… but next year it may be worth $200k or less.
The economy is to unstable to get involved in a deal like this
I’ve done a LOT of subject to deals and I would not touch this one with a ten foot pole.
Don’t make this seller’s problem your problem.
There are MUCH better deals out there.
Find out how likely the seller is to go into default if they aren’t able to sell the property. Then try to negotiate a discount on the 2nd mortgage and take it out. That should reduce the monthly payments by 300-400 dollars per month depending upon the size of the 2nd mortgage. If the seller tells the lender that they are headed to default, then the lender might consider taking a discount. The seller would probably have to miss a payment or two. They would need to go into default on the 1st before the 2nd so that it would be the 1st mortgage lender taking it to foreclosure first.
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