Re: I dont think so… - Posted by JD
Posted by JD on January 27, 2002 at 22:28:25:
I don’t find this at all hard to believe, and I can’t understand why anyone would even challenge it.
Re: THIS is the most important thread - Posted by Rob FL
Posted by Rob FL on January 29, 2002 at 08:47:35:
I think, John Doe’s real problem is not the DOS clause violation, but the DOS clause violation coupled with a private lender (not an institution) coupled with late payments and unpaid taxes.
Re: THIS is the most important thread - Posted by Bryan in Cali
Posted by Bryan in Cali on January 28, 2002 at 15:29:53:
Would it have been better in this case for “Doe” to have done a sandwich lease option and set up a three way escrow (t/b pays in, and checks to seller and you are cut)?
Agreed… - Posted by David Alexander
Posted by David Alexander on January 27, 2002 at 21:19:40:
becuase, if you put the 20%, your still in the same boat… you still have the ton risks out there you mentioned and are much more common than the DOS problem… Bankruptcy being a biggie…
It is a business and all businesses have to plan accordingly.
David Alexander
Re: Bad advice - Posted by GL(ON)
Posted by GL(ON) on January 28, 2002 at 20:24:42:
Actually he can carry the property. He caught up the late loan payments and can handle the tax bill. The cashflow problem was temporary.Too bad it caused such a fuss.
I think if his name was on the loan the lender would have come to him before going on a rampage.He would not be threatening to foreclose over the DOS. The tenant’s lawyer would not be holding the rent money.The tenant would not be all stirred up.
If by “no personal liability” you mean he could wash his hands of the whole mess and leave someone else holding the bag, I’m not even sure that is true. I don’t think he is that much of a sleaze ball for one thing. And once lawyers get involved, they tend to start lawsuits which can keep you tied up in knots for years.
Does he even want to walk away? He has a personal stake in this, as well as a $15,000 potential profit. It is easy to say you can always walk away from a deal but in practice once you get involved it’s not so easy.
There is another angle on this. If he had assumed the mortgage and taken personal responsibility maybe he would have taken things more seriously. If he had not been led by all this talk about no personal liability into an easy come, easy go attitude maybe he would not have bought so much so fast and stretched his resources too thin. I know you say you recommend a conservative approach but he seems to have missed that page. If he had, he would not be in such a mess, as you have pointed out previously.
Another thing you said is that no one should go into a subject to deal unless they have the resources to back up their position in case they get caught. Namely enough cash to pay off the mortgage or the means to borrow it.
If you assume a mortgage you don’t take that risk and you don’t need that backup. If you have the means to borrow why take the risk of subject to?
I could see doing a sub2 deal on a property I was going to sell quick, and was not going to put money into. But I would hate to buy a property and put a lot of time and money into renovations then “walk away”. I would also hate to live with the risk of being found out hanging over my head, in addition to the risks I am already taking.
Re: THIS is the most important thread - Posted by William Bronchick
Posted by William Bronchick on January 28, 2002 at 16:57:42:
No, taking subject to is the best way to buy property. It’s just that Doe got caught in a situation where there was little cash flow, the tenant defaulted and he couldn’t carry the property.
The “subject-to” “trust” “lease/option” discussion in the previous thread is a big red herring. The real issue is, “can you handle negative cash flow when things go bad?”
In this case, Doe was not personally liable on the note, so he can literally walk away without recourse.
Re: Bad advice - Posted by William Bronchick
Posted by William Bronchick on January 28, 2002 at 22:43:36:
I don’t see the logic -
If you are liable, then you’re more likely to have cash flow for fear of loss? That’s naive thinking. If a tenant stops paying his rent and you have to carry the mortgage payments on your own, the circumstances don’t change.
Why would someone take subject when they can assume personal liability for a loan? Several reasons:
- No personal liability (goes without saying)
- Does not appear on your credit report, so you can save your credit for when a bank loan makes most sense
- Better interest rates - I don’t know about Canada, but interest rates on owner-occupied loans are better than non-owner occupied loans
- No loans costs
- No “down payment requirements”
If the loan gets called, the refi is easier than a purchase money loan, and it is based on appraised value, not purchase price.
As far as the liability, or lack thereof, from subject to, I think you are missing the reality factor - if the property goes to sh**, I’d rather walk away from YOUR loan than face a foreclosure and possibly bankruptcy. You may call that sleazy, but having respresented a lot of clients that lost it all in the last recession, I call it SURVIVAL. Sorry, GL, but when it comes to feeding my family or yours, guess which one I choose?
And, contrary to what Dennis says, I’m not p*ssed at you.
One smart cookie you are,GL - Posted by dennis
Posted by dennis on January 28, 2002 at 21:56:49:
GL,
Let me see if I got this straight???
You have totally P. O.'ed John Hyre, esq.
And now you’ve started on Bill Bronchick, esq.
Awh just forget it…you ain’t worth the time to finish this thought
dennis
Re: Bad advice - Posted by GL(ON)
Posted by GL(ON) on January 28, 2002 at 23:52:08:
Who said being liable creates cash flow? I said that taking responsibility and being careful leads to taking less risk and having less problems and in the long run, probably making more money.
I also question the lack of liability. You could walk away from a property where the loan was in your name same as you could if it was in someone else’s. The only difference would be that you would be liable under the personal covenant if the lender failed to recover his money. But I suspect you would be liable to a lawsuit in any case.
Offset this against the risk of losing your property through a bank finding out about your sub2 deal.
I might chance a sub2 deal if it was a quick flip and I wasn’t going to put any money or work into a property. Otherwise I would be risking my own money work and equity .
I would also say a deal too shaky for me to put my name on is too shaky to get involved in.
Re: One smart cookie you are,GL - Posted by GL(ON)
Posted by GL(ON) on January 29, 2002 at 09:37:53:
Hyre and I made up. Bronchick has nothing against me. That is the difference between a discussion and an argument.
I have learned a lot from both, as well as others on this thread. It has cleared up certain questions I had about sub2. I still consider them complicated and risky but can see that they have their place in the investor’s arsenal. I would call it more of a last resort than a first choice but I can see where it would work in certain cases.
Consider this… - Posted by David Alexander
Posted by David Alexander on January 29, 2002 at 13:20:02:
Your brand new coming into RE for the first time… You Have No Money, No Credit… Or maybe you even made some mistakes in the past… Not all of us are perfect.
You’ve been reading about creating wealth, getting ahead, aven at the start possibly living below your means… all sorts of lights are coming on.
Now your a person of action… and there are many different personality types… some folks are rock steady… slowly steadily bulding… others go out and conquer the world in a day… sometimes a few bricks fall out in the process, during the building process… nevertheless a good foundation is put into place…
Well, buying properties subject to… at the start allows folks to start with very little, sometimes nothing… they start building and continually grow…
Because the bottom line is… No matter how you buy… Subject to, loans… your hard earned saved cash(last resort in my opinion) You have to get in the game… and in the game their are RISKS…
But, what is riskier… setting on the sidelines doing nothing, hoping for that day when you can get ahead enough to put some cash down… Hoping to get your credit squared, let someone else control destiny… through loan processing committees… I have friends that asked me about RE years ago… and said I Have NO Money, My credit is bad… I can’t start… so the mind is and that is what you achieve… one of them even recently bought his first property(he paid retail and got a loan))… Now I’m happy for him… he’s in the game… But, think about it, I’ve been steadily buying all those years because I was exposed to what is in my opinion a better way… some of them have yet to do their first deal… because of their beliefs…
You know what… You don’t have to wait… Today is the day… you can buy property legally no matter what your situation…
Now there is RISK in buying property with no reserves… there is RISK in any BUSINESS… or INVESTMENT… But, it’s better than the alternative…
It’s better to FACE the RISKS no matter where you are, make mistakes learn than again as I said before the alternative… Doing Nothing… out of fear or because lack of exposure or simply because you believe every building must be entered through the front door… ridiculous…
Staying in the same place Going insane because you expect different results without different actions.
I recently went into my banker to borrow 40k… that’s it… He’s seen my bank accounts… so he pulled my credit to give me the loan… My fico came up 593… Now the last time my credit was pulled it was 670… 3 years ago or so…I haven’t used my credit in all the years I’ve been investing… Seems there are other David Alexander’s… and their items are on my report… so he said get those removed and I’ll give you the loan…
You know what if I wait for him the deal will be gone…
Today is the day… Not everyone plans as perfect as you have my friend, and sometimes it isn’t planning… just not a perfect situation…
But, I can tell you this… I have alot of assets and they grow everyday… I make mistakes… we all do and if we aren’t then we are moving too slow…
John Doe made a mistake… but the fact is, it can happen to anybody… real simply if your using any form of leverage, your loan or theirs… someone files bankruptcy on you, trashes a house, gets laid off… September 9 - 11, laws in your state change, economy changes… they can all cause problems… Lets don’t get into all these things happening at once… things that are beyond your control, not beyond your planning, and not leaving you unaccountable… but, nevertheless You get your scars and vow to plan better next time…
In 30 years, if you have never had and bruises similar to his… then…
A. Your moving too slow and probably could have accomplished far more
B. Your just don’t remember or arent telling the truth…
C. Your setting on the sidelines and arent really an Investor…
D. You have lead a perfect life and are therefore getting perfect reuslts and we should all bow to you…
I don’t mean these to be condescending… more tongue in cheek…
I just hang around too many Investors that have been in this business far longer than I, they have bruises and scars… I have some myself… Even Investors that use all their own cash to buy the deals and own them completely experience this stuff…
It’s all just part of it…
So In my mind like Bronchick has eloquently pointed out… that if your going to be able to do this business using trusts to keep your assets hidden and buying subject to as to avoid personal liability… and entities for other protection You’ll be able to recover from the mistakes that could happen, and in the event everything collapse start over the next day barring any emotional time off you might need.
David Alexander
Re: Consider this… - Posted by GL(ON)
Posted by GL(ON) on January 29, 2002 at 14:36:34:
I was thrilled to bits when I discovered RE investing too. This was about 1969. I thought it was the greatest get rich quick scheme of all.
It actually took me several years and some hard lumps to get over it, and discover this is a business like any other. If you aren’t willing to do the work and take responsiblility as if you were working for a tough boss, then you are going to get into trouble. And no one in the whole world will feel sorry for you.
There were no books, courses or infomercials in those days telling me what a quick easy fortune there was to be made. Maybe if there were I would have got my butt kicked and quit, bamboozled by all the hype into thinking it was a scam and I could NEVER make good. Who knows?
I like to see enthusiastic new investors. I think it’s the greatest investment opportunity in the world for the little man. And by that I mean the ordinary man or woman without great wealth, education, connections or other advantages.
I don’t like to see people crash and burn. I have watched this happen several times. In every case, a little knowlege and caution at the right time would have saved them endless grief a few years down the road. More than once I have advised people that the deal they were embarking on contained the seeds of disaster. Did they listen? Like H*ll they did. They had a plan and an idea in their heads, and they weren’t going to let anybody stop them.
Now I think it is important for ME to know all the risks and to look at a new idea from every angle before I try it for myself. Part of this is the fact that I live in Canada and 99% of the creative ideas are developed in the States. Half of them won’t work here and the other half need to be modified. Maybe this gives me a skeptical frame of mind.
I love discussing this business and learning new ideas. But I don’t like to see people led into bad habits either.
I have seen another strange phenomenon leading to disaster that I have never seen discussed before.
That is where someone starts out as you say, full of ambition for quick easy wealth and ready to cut corners and do any kind of deal to make a buck. This makes sense, if you look at it from the standpoint of “what have I got to lose”.
What baffles me is when they keep on doing these tricky, risky deals long after they have made their million, have the big house, Mercedes, important position in the community etc. In other words they no longer need to do tricky deals to make money, they could easily become conservative. They have very little to gain and evrything to lose. Then something happens and their whole life collapses like a house of cards and they wind up actually worse off than when they started, and now they are 40, 50, or 60 years old and have to blow town and try to start again. What gets into these people? Why don’t they quit while they are ahead? I think it is because when you start chiselling it becomes a habit. It becomes normal operating behavior. After awhile you don’t even feel sneaky about it. In the end they are actually surprised they got in trouble over it, they had so long forgotten themselves.
John Reed has a list of once prominent gurus on his site, and what became of them. Every one went bankrupt, went to jail or is on the lam except one. William Nickerson. It took him 17 years to make enough to retire (1934 - 1951). Then it took him 6 months to double his net worth to $1 million (1959). By 1969 it was $3 million. 1982 it was $5 million. Through all this time it was a part time effort leaving plenty of time for family, church and social affairs plus world travel, vacations etc.
So what does all this mean? I don’t know. I think you caught me when I was questioning something that has become conventional wisdom and I look like a cynic. If you looked at some of my past posts you would see I can also promote creative ideas and encourage beginners to take a chance. I still see a big difference between taking a deal with the odds in your favor and all risk covered, and wild plunging.
“Know what you are risking and never risk it all” ought to be the rule.
and Maybe… - Posted by David Alexander
Posted by David Alexander on January 29, 2002 at 15:25:19:
I’m a bit Naive…
But, I believe in RISKING it All to an extent…
Mediocrity Sucks!
Then comes education… you can raise alligators, but with proper education… what would seem risky to most is just business as normal for you…
Now I agree, once you’ve accumulated assets… You would want to remove them from risk… That doesnt necessarily mean removing all leverage…
Your Quote…
“Know what you are risking and never risk it all” ought to be the rule.
Whose Rule… You can never know everything… and that in itself is your biggest advantage… knowing you dont know it all… it is everyones own choice as to what and how big of risks they take, not yours or mine… And likewise neither are how big a risk any individual is willing to take to make their world different…
When it is all said and done… will it have been RISKY if all your success and goals are accomplished… Probably not… but, one thing is for sure… it is the journey that is fun… not just the end result…
Oh Yeah, If someone had told me it was going to take me 17 years to reach retirement… I probably wouldn’t have even considered that program.
Now that explains it all… Your reference to Jack… I’m starting to understand your cynicism
And an increase from 1 Mil to 5 Mil in 23 years could almost be accomplished in CD’s… it’s just a hair over 7% growth…
David Alexander
Re: and Maybe… - Posted by GL(ON)
Posted by GL(ON) on January 29, 2002 at 16:04:13:
You really are naive if you believe it is necessary to “risk it all”. That’s the loser’s motto. All the broke people believe that, but none of the rich people do.
I was surprised to find out that the most profitable deals are the least risky, and vice versa.
You don’t have to take it from me. Read this board for a while. You will see newbies eager to take any deal, even knowing there is little or no profit in it, and without knowing or caring how much risk is involved.
Then read posts from the most successful and you will see they are the most selective, taking only one deal out of 40, and cherry picking only the best.
That’s the secret of making nothing but good deals by the way. You learn to turn down the bad ones. But first you learn to tell the difference.
“If someone had told me it was going to take me 17 years to
reach retirement… I probably wouldn’t have even considered that
program.”
Boy does that take me back. That is exactly what I thought when I started at age 22. I couldn’t wait to sell my first building and pyramid the profits into the biggest place I could afford. 5 years later I got caught in a credit squeeze and lost it all.
If I had kept that first building I would never have gotten in a jam. It would have paid itself off in 1988 (it only had 15 years on the mortgage, and it had plenty of cash flow). At the present time it brings in about $6500 a month.
If I had known, I never had to sell it. I should have kept it and bought more.
We grow too soon old and too late smart. We all have to learn, it seems a shame it has to be the hard way.