How would you like to come up to the plate in the bottom of the ninth inning, with two outs and with the go-ahead run on third? Every young baseball player imagines being in that position, or in a position to win the World Series. It’s like that in the real estate business as well, because we are always looking for that “home run” deal that we can flip for a lot of money.

Last night a close friend of mine told me about his deal of a lifetime (8 years, actually), whereby he bought a house at auction for $415,000 and sold it in one week for $950,000! The property has some serious title issues, but he did the research and bought the property when others couldn’t figure it out.

If you’re in this business long enough, look at enough opportunities and understand how to solve problems – you will someday get a “home run.”

Buying a house “subject to the mortgage” could be a home run deal

Buying a house "subject to the mortgage" could be a home run deal blog by RJ Palano in his series Art of the Deal for Personal Real Estate Investor MagazineLast week I came across an incredible house in a fantastic area that had a loan on it at 3.1% interest. I’ll show you a video of the exterior and the neighborhood at the end of the article. It’s not often we come across what I refer to as the perfect “subject to the mortgage” opportunity.

By the way, when you buy a house “subject to debt” you are not assuming the loan and it stays in the seller’s name.

Here are the particulars: The seller already owns another house with his new wife and desired an “easy sale” – right there, I knew I had a shot at “subject to” because he didn’t need his credit to buy the other house, he already owned it.

Take a look below at this deal:

  1. Sales price – $10,000 over the mortgage
  2. Subject to $154,000 with 14 years remaining
  3. Payments PITI of $1,391.91
  4. House will rent for $1,600 – $1,700
  5. House needs less than $2,000 worth of work
  6. Current real value for retail sale: $210,000 – $225,000

Let’s consider our exit plan in this deal:

  1. I could sell the house fast and net $30,000 – $40,000 profit by selling it retail. OR
  2. I could hold it in my portfolio of rentals and the principal pay down each year with the high loan constant is over $10,000 per year. That is massive equity buildup and I would still have depreciation of approximately $4,727 per year to offset rental income.

I don’t generally “fall in love” with houses, as I am a non-emotional buyer, but this house—a beauty for my portfolio of long-term keepers—that’s what I’m doing.

Take a look at this video and if you ever need some fast insights on a transaction you are trying to put together, call me at (813) 435-1551 ext. 1010.

I’ve also enclosed a copy of the agreement I used. This will demonstrate how to write this type of transaction up. Also included is the mortgage statement so you can see how the principal is paid down and the property will be completely paid off in 14 years. Hmm…I wonder what it will be worth then. “Enough” is the real answer, and by doing transactions using the “subject to” method, you have very little risk and don’t have to use your personal credit.

There used to be many seminars on these type of transactions, and you have to be discriminatory on what sellers these types of transactions work best with. It’s typically someone who doesn’t need credit, has just inherited a house or who just wants to sell and be done with it because of credit that is damaged.

See the contract here.

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Tags | Mortgages
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