How To Buy Real Estate Subject To

0:00 Hey, welcome back to this five -part video series about how to structure and buy real estate using creative financing. By learning these different strategies, you'll have additional ways to profit on real estate deals, making you a better, smarter investor. This is video four in the series, and on this video, I'm going to show you everything you need to know about structuring and buying real estate using a creative financing strategy known as the Subject Two. hey it's Jerry Norton the nation's leading expert on flipping houses and if you're new here to make more money and less time flipping real estate so you can live your dream life subscribe to my channel click the bell icon to get notified when new videos are released the conventional way to buy real estate is to get a loan from a bank to pay for the purchase this requires tax returns credit reports

0:48 job history you know big down payments and personal guarantees with conventional financing you are limited in your ability to do conventional financing you are limited in your deals but with unconventional creative financing strategies there are no requirements and there are no limits it's whatever you can negotiate and whatever you can structure which is why creative financing is so exciting and why I can't wait to share with you today's creative financing strategy called subject to subject to is a more advanced strategy because you really need to understand how real estate lending works but once you really get it it's a powerful strategy so i'm going to do my best to explain it to you it's a powerful strategy so I'm going to do and by the way before i forget all of the videos in this five -part video series about structuring and buying real estate using creative financing i've created a playlist and i'll put the links to those videos in the description box below so you can watch them later now when someone

1:36 buys a property and gets financing from a lending institution to pay for some or all of the purchase the lender puts a mortgage or deed of trust lien on the property now this is how the lender is protected because not only does the owner have to pay off the lien protected because not only does the owner have to pay in order to sell the property, but in the event that the owner defaults on the loan, the lender can foreclose and take back the property. Now remember in video two of this five video series, I discussed how to get a seller to owner finance the property for you. In other words, the owner sells you the property becomes the lender for you on some or all of the purchase. If you missed that video, I'll put a link in the description box below. Be sure to watch it. Well, seller financing only works if the owner owns the property free and clear, because he can't technically be the lender if there's already a lender who holds a lien position. For example, let's say that Wells Fargo is the lender and there

2:24 is a mortgage lien on the property in the amount of $100 ,000. In this case, the seller couldn't do a seller finance loan with you for $100 ,000 because the existing loan with Wells Fargo takes precedence. Okay, now I hope that makes sense to you. So what alternative creative financing solution do we have What financing solution do we have when the seller has an existing mortgage on the property? when the seller has an existing mortgage? This is where the subject to strategy comes in. Subject to is short for subject to the existing financing. Sometimes it's even abbreviated to be sub two. Now the simplest way to explain this is rather than buying the property and paying off the existing loan, instead you're going to assume or take over the existing loan payments that are already in place. By taking over the payments, the seller is able to walk from the property and is relieved of making the loan payments, insurance

3:12 taxes, upkeep, and all of the other costs of ownership because you're assuming all of those costs. Sounds simple enough in theory, but here's where it gets tricky. Remember I said that the owner can't sell the property without paying off the existing loan? That means even though you take over the payments, the loan stays in the owner's name. The bank will not transfer the liability or loan into your name. so this is a risk to the owner because in the event you stop making the So this is a risk to the owner because in the... loan payments for whatever reason who is the bank going to hold responsible the original owner not you so how does the investor get ownership without transferring liability of the loan so what investors do is they create a contract that transfers the deed to them but not the liability this allows the investor to control the property and rent it or sell it and realize

3:59 any upside equity of course when the investor sells it the original existing loan will get paid off at that time. now technology Now, technically, transferring the deed triggers what's called a due -on -sale clause, where the lender could call the loan due, but the reality is the lender has no way of knowing that you and the owner did a sub -two deal, and honestly, as long as the lender is getting their monthly payment, they really don't care. Why would they? So here are the six steps to structuring a subject -to deal, but first, today's video is brought to you by Flipster, the number one house -flipping deal management platform on the planet. form on the planet. If you've never heard of Flipster, not only does it organize, you, streamline, and automate all of the steps of flipping houses, but it actually finds and funds deals for you. It's really cool, so whether you're working on your first deal or you're doing deals every month, Flipster can help you get to the next level. To learn more and see it in action, just go to getflipster .com or click the link

4:46 in the description below. Step number one is to find out the terms of the existing loan, including the principal balance, interest rate, monthly payment, and if there is a balloon or early due date to pay off the loan. Now this is easy to find out. Just ask the homeowner to provide the most recent mortgage statement or even better, have the owner get a payoff letter from the lender. Lenders provide those all the time and they can usually email it to the owner right away. Step number two to putting together a sub -two deal is find out how much equity is in the deal. In other words, how much do they owe compared to how much it's worth? If the current balance due on the loan is $70 ,000 and its current as -is value is $100 ,000, If you're an as -is value is $100 ,000, then there is 30 % or $30 ,000 in equity. then there is 30 % or $30 ,000. Step number three when putting a sub -two deal together is to determine your exit strategy. If there's enough equity, you could turn around and flip

5:33 it, which is what I like to do. You could also keep it long -term as a rental. Now, some investors will do this with no equity if they can still cash flow. So, for example, let's say that the loan balance is $100 ,000 and the as -is value is $100 ,000, so there's no equity on the deal. normally this would be a no deal situation but what if the interest rate is really low and Normally, this would be a no -deal situation, but what if the interest rate... the total monthly payment is only seven hundred dollars but the property will rent for eleven hundred dollars for a buy hold investor no equity is offset by a four hundred dollar a month cash flow and hopefully over time the property appreciates in value now part of deciding on the exit is step four which is to factor in any and all out -of -pocket expenses to do the deal Sometimes the owner is behind on payments and hasn't paid the property taxes. All of that will

6:20 require out -of -pocket cash at closing to bring everything current, and those costs will need to be factored into the deal. With step number five, another expense to consider is giving the owner cash at closing. Sometimes it's enough to the owner to just be rid of the headache, but often if you can get the seller some cash in his pocket, it makes the deal go much smoother. Now it all depends on the exit and the numbers, but if possible, build into the deal getting the seller like $5 ,000 cash at closing. And get a specialized Sub -2 attorney to put the paperwork together. This is something that I highly recommend you don't do yourself. It may cost you $500 to $1 ,000, but it's well worth it to make sure everything is done correctly. And pro tip here, one of the concerns an owner has with doing a Sub -2 deal is making sure you make the payments on time every month, because remember, the owner is still liable. So to ease their concerns, offer

7:10 to have a third -party servicing company do the payments every month. That way the owner would get notified if a payment was ever late or missed. Now let me give you an example of a recent sub two flip that one of my elite mentoring students Phil Robertson did in Holly Springs, North Carolina. Now Phil found a motivated seller who owed $175 ,000 on his property with a current as his value of $260 ,000. The seller lost his job and was several months behind on payments and in pre -foreclosure. before closure. Now here's how Phil structured the deal. He took over the property subject to the existing loan. Now the total monthly payment was $1 ,100. He paid approximately $5 ,000 in back payments and legal and closing fees to put the deal together. He also paid the seller $10 ,000 cash at closing. So he had approximately $15 ,000 out -of -pocket on the deal. Now after closing he put

7:58 a for sale by owner sign in the front yard just to see what would happen and immediately got a buyer for $258 ,000. 30 days later he closed on the sale with the new owner. Now at closing he paid off the existing loan of $175 ,000. He recovered his out -of -pocket expenses of $15 ,000 and after only making one $1 ,100 a month payment on the loan he made a profit of $65 ,000 with only a total of $15 ,000 out -of -pocket. Now how would you like to do a deal like that? Well now you know how. Hey if you learned something on today's video show some love hit that like button right now and leave a comment let me know your biggest takeaway i'd love to hear from you and if you haven't yet be sure to subscribe to the channel i'm dedicated to helping you make more money and less time flipping houses so you can live your dream life and finally this was video four in our five video series

8:44 using creative financing to make more money in real estate be sure to watch this next video in the series where i show how to buy real estate using a lease option and a master lease now you don't want to miss that so watch that now and remember it's not about the money it's about having the time and freedom to have me do and give everything you want in life that's what it's all about and i'll see you do and give everything you want in life, that's what it's all about, and I'll see you on the next video.