Sub2...Anwers to post and e-mails. - Posted by $Cash$

Posted by Marcos on July 19, 2002 at 09:22:22:

FYI- That thread was here:

“Let’s face it, how much did we have to learn just getting started in this industry; Finance, Advertising, Proceedures, Basic Law Contracts etc., to do it the right way.”

Marcos: Tons and tons. I’ve bought and used thousands of dollars in courses, not only real estate, but sales and self-development as well. Literally invested hundreds and thousands of hours learning about this business, and actually doing it. Each deal I do and especially the deals I DON’T do, each is a lesson in and of itself.

About what you said about Newbies. I understand completely and of course agree. How do newbies get started? I don’t know, perhaps there is no best and true way. How many succeed? Almost all of the ones that actually do something. But none of the ones that wait and do nothing. I’m pretty strongly opposed to a complete newbie doing Subject-to deals. But, not at all opposed to people who have a clue doing them.

I like dealing with properties that have substantial equity. In my market there are more of these than I can handle. I just don’t believe no equity deals works for where I’m trying to go with my business. Perhaps in the future this could be the case. But given the choice between doing a no equity deal, and a 30-40% equity deal, it’s obvious where my choice would be.

It’s been a fun conversation none-the-less.


Sub2…Anwers to post and e-mails. - Posted by $Cash$

Posted by $Cash$ on July 17, 2002 at 13:35:29:

I felt that since this was a post to me about ?Sub2, that?s what I do? deserving an answer, because the general drift of the questions asked and amount of personal e-mails are about the same.

I would like to answer all the emails received but I would be at it a long time so if this post cuts down on answering some of these e-mails it will at least help me.

New persons starting out may find solace in what I say also. It is long so anyone to who it doesn?t pertain to I apologize for taking your time.

Marcos: I’m not actually talking about my investing, I’m talking about your strategy.

Here are the issues as I see them

  1. $12k down on a $100k house. Honestly, there just aren’t that many buyers that have the $12k down. Here are just a sample of a few of the LIVE ads in my paper today.

4/2 - Owner will finance. $2500 moves you in. Great neighborhood. $700mo. 710-7860.
OWNER FINANCE, NO QUAL! Minimum $4K down. From $759/mo. 24hr 1-866-202-6076 x4

Some of the investors in my area do really stupid things. Owner finance for less than 5% down. Do a Lease/Option with $500 down, etc. I’m in Jacksonville, FL by the way.
You seem to have found a way to get people into your houses that have $12k down. I think that in reality that is VERY difficult to achieve. If you took 100 bad credit individuals, only 1 or 2 could conceivably come up with that much money down. No matter what the terms.

Now if you’re in California or some other high dollar area, and you somehow found a $100k house, then I could see that happening. But not here in Florida. When I sell a home, I have to use down payment assistance programs as noone seems to have cash these days. Either that, or I pay for their closing costs.

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I checked back to see if I misled anyone that you could get $12K down on a $100K house all the time. I believe I said that I get $6K to $12K down. This would depend on the condition and area location of the house on what I received down. Can you get $12K down on a $100K? Yes. Would I advise doing this on every $100K house? No.

I would not sell a $100K house for less than $6K down. If I did not believe I could get a minimum of $6K down I would not buy the house.

When I first started I did just to get the practice in talking to house sellers and honing my sales skills.

You pointed out that only 1 or 2 could conceivably come up this that much money down. You were referring to $12K down. In my opinion that would be all I need 1 or 2 to sell the house to.

I also related that if I took a partial down let?s say $3K down, I would set up a note to get my other $3K before they had to refinance.

I do not care what the rest of the investors are doing in my area; they also do the $1K down. So what does that mean to me? Nothing. They must be stupid here too just like in your area.

Here is an example maybe not related to buying and selling houses, but you will get the drift.

I owned a radio station in the Jacksonville area (your area) so I am familiar with the area. I over heard my salespersons talking about how no one had any money to advertise and how bad the economy was and all the other negative reasons they could not sell advertising. I said to them that I would prove that what they were saying was not true and challenged them to give me a potential client they thought was the toughest and would never buy advertising.

They gave me the name of a bicycle shop owner who owns a shop in Jacksonville. I cut what we call an advertising spec spot on tape. Took my tape recorder and my spec spot along with an advertising contract for $10,000 to the owner of the of the bike shop.

The spec spot started out?3 different ladies one after the other saying ?I peddle it all over Jacksonville?, Then the announcer said They all peddle it all over Jacksonville on a bicycle from Norwood (I think that?s the name, maybe they are still there) Bike and Mower etc.

The owner signed the contract for $10K. Darn good thing I didn?t listen to those salesman.

Buy the way the owner did very well with his new advertising campaign. Even had T-Shirts made up saying ?I peddle it all over Jacksonville with a bike from Norwood Bike and Mower?. (Feminists, please my wife put her shoes back on years ago.)

Marcos: 2. Different scenarios that could go wrong. You talk about preferring properties with no equity.
The problem comes when something bad happens. You sell to a lawyer, and they decide they aren’t going to pay you. Hell, you can’t even report their delinquency to the credit bureaus. Now, you have to get a lawyer, and it might take you 12 months to foreclose. Have you ever had someone fight you in the process. It’s not pretty. How do you explain to the judge that I sold it to this guy, yet I haven’t recorded the deed, and the note is not in my name. I mean there are a lot of pitfalls here. That’s one scenario I see.

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This one is easy DO NOT SELL TO AN ATTORNEY, I am not found of them anyway.

Jhyre, you answered a question I asked this does not include you.

If you are not recording anything to protect you and your buyer then you are doing something wrong. I cannot recommend what to record to do this I am not an Attorney or one to give advice in this area, but they are ways. Read the archives.

Marcos: Another possible scenario. The note gets called due. And you have no equity in the property. Yet you’ve sold the property to somone else, and they can’t qualify for a new loan yet. How do you counter that?

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Since I have only personally been involved in only about Five Hundred Sub2 property transactions and never had the Due on Sale Clause invoked on me it is hard for me to answer. Guess the legal paperwork that I record has never triggered the DOS clause. I do have an answer but this post is long enough.

Marcos: I mean, I could dream up a thousand nightmare scenarios of what COULD happen. The point is, when there is no equity it’s very hard to have a Plan B. I don’t like the idea of setting up a strategy of getting properties subject 2 that have no equity. Sure, you might have decent cash flow, and small lump sums of cash. But, if/when something goes wrong, it could be disastrous.

But, of course that is just my opinion.


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Marcos I do value your opinion, I only keep about $150K in the trust account at my Loan Servicing Company, should I increase this amount?


Re: Sub2…Anwers to post and e-mails. - Posted by Marcos

Posted by Marcos on July 18, 2002 at 07:48:32:

I appreciate the response. I wasn’t trying to attack you. I was just trying to find my way around your investment style. And I will admit a little concerned about the ramifications if a newbie were to implement what you proposed.

Ok, I must have missed the part about the $3k down and finance the $3k. I have done that as well. I’m currently doing that right now. Not those exact numbers obviously, but if you have a real strong candidate with plenty of spendable income, it makes it easier.

I agree with not renting or selling to attorneys(sorry Bill). And I also agree that the DOSC is pretty much overstated. I personally have flaunted the DOSC and know personally many people that have violated it hundreds of times. It’s not really that much of an issue.

I suppose my problem lies in the fact that your whole system concentrates on low equity properties. In small numbers that is dangerous. As you get into higher numbers it becomes less dangerous UNLESS you enter a really bad market swing. Then you could get into trouble. And couple that with the fact, that it really isn’t that hard to get properties in the 70-80% of FMV. I find more of these than I can conceivably deal with on a monthly basis. Hence I tend to stay away from low equity deals if at all possible. Make sense? Although I could see how your system for a mature investor might make a whole lot of sense. Probably just not for a beginner.

Is $150k enough? I don’t know, you’d have to tell me, depends on how many properties you held at any one time. And only you will know. I tend to keep 6 months of reserves at all times. Although that can be a little hard to pinpoint. When your portfolio is always in flux. I’m down to less than two right now, because of numerous vacancies, and a few rehabs I have going on.

I suppose my concern wouldn’t be for you my anonymous friend. My concern would be for a newbie who takes on a subject to with no equity and no idea how to do it right as her first and only property. There are inherent risks in Subject 2, and the past does not equal the future. You do run the risk of loans being called Sub2. Granted it may be very minimal. But, ask Hal about his friend in New Orleans who is spending time looking behind bars right now. There was quite a bit about him posted about a year and a half ago, if I remember right. I’ll look up a post for you later.

Good Luck to you in your investing. And thanks again for your cogent and well thought out reply.


P.S.- Norwood is still there last time I checked. I used to live on that side of town.

Re: Sub2…Anwers to post and e-mails. - Posted by $Cash$

Posted by $Cash$ on July 18, 2002 at 17:41:12:


Super glad to meet.

Let’s face it, how much did we have to learn just getting started in this industry; Finance, Advertising, Proceedures, Basic Law Contracts etc., to do it the right way.

I did not start by whacking my credit card to get my first deal. Some investors that write courses suggest you use your credit card to buy their courses even if the buyer does not have food money. Because that person can buy property with no money down, no credit and take the bus to his appointments. Now that’s scary.

How many newbies really make it? There should be a way to find out before hand. It was pointed out to me not to operate on someone with out the education.
What they forgot to say is this Doctor took many tests to see if he could make it before he became a Physician. Then he did an internship.

The thrust in my post was do not tell me it cannot be done. I have done it. So can you! You have a good point; should a newbie start out doing Sub2’s without more experience. I have a theory on how a new person should get started but not here or now.

In my case I started out hitting home runs and never looked back. So maybe I should have listened a little harder to what you were saying.

You are right. In small numbers you can get into trouble unless you take certain precautions.

If someone went to DOS prison, I would like to see that case.

If you are passing up low equity stuff, do you mind if I fly in weekends, six or seven more deals a week never hurts?

Looking forward to talking again.