Need help with exit strategy on subject to deal - Posted by Sean

Posted by dealmaker on August 03, 2005 at 23:41:36:

Colin, I guess living in Vegas you don’t know much about TX real estate. There is NO APPRECIATION to speak of. Pay down on the note, let’s say the loan is at 5.5%, on $102K he’ll pay down $2800 or so in two years. If his negative cash flow is ONLY $110/month it’ll wipe that out. Plus which when he gets his next property tax bill and his homestead exemption goes away, his property tax will likely increase by another $450/year.

It’s odd that two of us sitting in TX, one of us bleeding money can see the situation so clearly, but you offer him a different way of holding title as a panacea.

Overencumbered properties are only moneymakers if a “bigger fool” comes along. Trust me there are lots of fools in TX, but there are also THOUSANDS of $102K properties that WILL NOT cash flow, and changing the way of taking title will not change that fact.

In fact the glut of out of state investors who confuse CA (or NV, MI, NY, CT or FL) market prices with TX rental rates has led to an oversupply of rental units in some of our cities, and a corresponding drop in rents.

He’s already decided to bail, probably best to do so, despite the “expert advice from afar”.


Need help with exit strategy on subject to deal - Posted by Sean

Posted by Sean on August 02, 2005 at 12:36:51:

Hi gang:

About a year ago I acquired a KB home via a subject to agreement with the previous owner. The loan on the property is a VA loan and has a low interest rate. House is about 2 years old and doesn’t require any work.

I got this property hoping to lease-option to a new owner, but that plan turned out to be a total bust for two reasons. First was that I didn’t get any takers, in spite of advertising all over the place with signs, newspaper ads, etc. The second reason that’s not going to work is because they just changed the laws here in TX so that you can’t do L/O deals if there’s a lien on the property.

So plan B would be to rent it out. However I’m not sure I want to do that at this point. The appreciation here in Texas is slow, especially for KB homes. The positive cashflow on the house would only be around $50 or $100 a month max, and that doesn’t account for any emergencies or repairs that are required.

I thought about simply giving the property back to the previous owner, but would prefer not to do that. Do you think another investor would be interested in buying out my interest in the property?

Any advice is greatly appreciated.



Re: Exit strategy in TX - Posted by dealmaker

Posted by dealmaker on August 02, 2005 at 21:09:55:

Whether or not you can deal it to another “investor” depends on whether or not they read posts on this site. It seems like every day there’s lots of folks posting on here about how many good deals can be found in TX, BECAUSE AN AGENT DOWN HERE TOLD THEM SO, and the prices look CHEAP compared to wherever they live now.

Your post confirms what I keep telling these people, the TX rental market is based on the TX sales market, not the CA sales market.

It doesn’t sound like you’re going to lose much on this, not so sure about the guy that let you take it via S/T. Don’t fall in love with an investment. As of now there’s no gain, no equity and no cash flow, is anything likely to change any of those factors soon?

BTW, the answer to that question is NO. Let it go.


What Equity??? - Posted by Sean

Posted by Sean on August 02, 2005 at 14:17:54:

You just said you can’t sell the thing… who the hells going to pay you money for a property that won’t sell? Think about it… you have ZERO EQUITY, if not negative equity, I don’t care what the appraisal says.

Re: Need help… - Posted by Mike (Seattle WA)

Posted by Mike (Seattle WA) on August 02, 2005 at 13:34:27:

What’s the equity in the place? Repairs? Are you upside down at this point?

Re: Need help… - Posted by Sean

Posted by Sean on August 02, 2005 at 21:28:37:

A new KB Home with an identical floorplan sells for $107,000.00. There’s about $102,000 owed on the loan. So not much equity to speak of, and most of the buyers would rather get a brand new house in the next subdivision.

I’m not looking to sell it and make a big profit here, but was thinking more along the lines of someone else buying out my position and taking the deed, leaving the original owner’s name on the loan. It’s a low-interest VA guaranteed loan, so the place might make a good long-term rental property.

I just don’t have the time or desire to be a landlord.

Re: Need help… - Posted by colvegas

Posted by colvegas on August 03, 2005 at 02:14:17:

Given your situation you best hope is to hold the property for hopefully some appreciation down the road.
Can you get a tenant for the property…??
I would consider placing the property into a title holding land trust since there are numerous benefits to doing that and do at least a 2 yr or more term.
The property probably will have some appreciation on it after 2 years and there will be the principal paydown on the note.
If you email me I will forward to you the 40 benefits of using land trusts in your investing.
WE specialize in overencumbered properties.
My method is legal and follows federal law thus superceding Texas state law. You need not worry about the new legislation affecting L/O in your state since using Equity Holding Trust Transfer method there is not sale or L/O of the real estate so we are exempt from this new legislation.
I think I have a viable solution to your problem where by I can protect you and any investors in your transaction.
My email is