Is this viable sub-2? - Posted by Chad (MD)

Real Estate Investing
#1

Posted by JT-IN on July 13, 2007 at 08:38:26:

Chad:

  1. Definitely have a title search and title insurance, if you were to proceed ahead with this or any other Sub2 purchase.

  2. No difficult to change payee on rents. You would have the seller indemnify any future payments, which they may receive from Sect 8, in additions pro-rating rents from day of closing to end of the month for the month you were to close.

  3. What makes this property worth 17K more this year than last…? Yes, now it has income stream, which it may or may not have had previously. Has the seller indicated that they would sell Sub2…? This method is usually only considered by those who are desperate to sell… If this landlord fits that category, you will want to make certain you understand the whys and wherefores, and make certain you can mitigate whatever the problem and motivation happens to be. You definitely don’t want to step into the owners shoes and be in the same boat that they are in, one year from now. So the loan amt is 70K…? how does that cash flow with the Sect 8 rents, less expenses and mtg pymt…? Seems kind of skinny to me.

JT-IN

#2

Is this viable sub-2? - Posted by Chad (MD)

Posted by Chad (MD) on July 13, 2007 at 07:19:43:

Hi all,

I just got a call from a seller who said she wants to get rid of her property. It’s section 8 rented for $800 a month and in a 90-100k neighborhood. She said she wanted “around 70.” I see in the records that she bought it last year for 53k. I was thinking this might be a good sub-2 candidate, but I’ve never done a sub-2 before so I have a few questions:

  1. should I pay for a title search to find out what other encumbrances may be attached to the property?

  2. Is it difficult to get Section 8 to change their payment to me?

  3. Is this a deal a dog for some obvious reason I don’t see?

#3

Thanks, Joe and JT - Posted by Chad (MD)

Posted by Chad (MD) on July 13, 2007 at 09:55:16:

Thanks, Joe and JT,

I’m thrilled to get responses from two heavy hitters. To clarify, I was thinking of buying this property sub-2 for 53k – the balance on the mortgage. The seller said she wanted “around 70” but I wouldn’t go that high. It’s definitely a 90-100k house once rehabbed. I don’t know it’s current condition but it is currently occupied. It’s a row home, so 10-20k goes a long way for rehabbing.

I do have several rentals in the same area, so I know what is involved, although I DO NOT like landlording. I prefer to be a fart in the wind (ha ha – that’s Joe’s phrase).

I also like Joe’s method of lease/option, but in this case I thought it wouldn’t work since the house is already rented.

Thanks again for the great advice.

#4

Re: Is this viable sub-2? - Posted by Joe Kaiser

Posted by Joe Kaiser on July 13, 2007 at 09:12:18:

Chad,

No reason to pay for a title search now. That’s something you’d want to
do after it’s under contract. Otherwise, you’ll be buying lots of title
searches for properties the seller won’t be selling to you.

Sub 2 is merely a method for financing the property. If this deal doesn’t
make sense as a normally financed sale, it probably doesn’t make
sense as a Sub2 financed deal.

It may or may not be a dog, but if you buy it, it will be your dog.

And that means you need to be prepared to become a landlord and
expert property manager. That’s a whole different game and some of
the best investors I know couldn’t manage a pup tent, much less a
rental portfolio (that includes me).

Like JT says, it’s skinny, but if the payments are cheap, the numbers
solid, and you’re all set to landlord up, then maybe you do this deal.

But before you do, understand that with a deed comes all kinds of
responsibilities, and if you’re not 100% certain you can manage those
responsibilities, you need to rethink this approach.

Joe Kaiser