The real estate blog.

Once being a ”newbie” real estate investor myself, I know how valuable hearing advice directly from a real person actually using the strategy is to the education process. 

Josh Houghton, from the Real Life Real Estate Blog (which we reviewed a little while back) was nice enough to share a bit of his real life experience and expertise in purchasing real estate “Subject To” with us.

We hope to make guest posts from actual real estate investors on the ground doing this everyday a regular thing on this blog.  Afterall, the best way to learn something is to learn it from someone who is actually doing it… and doing it successfully.

Look for the bold phrases for the priceless nuggets that you REALLY NEED to retain.

Here we go! 

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Josh Houghton on Investing in Real Estate Subject To:

First off, I just want to say that Trevor’s post on purchasing real estate Subject To method was an excellent resource for investors and had some great information inside.

After reading the post I felt I needed to add a couple of extra items of information. I would like to thank Trevor for allowing me to post a follow up to his article. I think the subject to method can be a great investing tool for buying properties, but it can also cause a lot of pain for investors who don’t understand the finer points of subject to investing. So I thought I would add some extra insight for anyone who is interested.

Many people hype up the subject to method of buying, but you must remember that investing using this method requires a little more work and knowledge then a common deal.

Sellers will be calling you to help them solve their real estate problems. You will also not have as much time as a conventional deal. Many of the sellers who will be calling you will be in the pre-foreclosure stage and may be close to actually facing foreclosure. Some of these issues include items such as inspecting the property, informing the seller of the risk and rewards, reviewing and understanding the loan documents, setting up the closing, dealing with the mortgage company, insurance, change of address and many other items.

Some of these items fall into the usually stuff you must do for any real estate deal to happen, but most subject to deals require a little more work and attention to detail. Now once you complete a couple of subject to transactions then the rest of them may be pretty easy, but if you have never done a deal before then I recommend you do a couple of “normal” deals before attempting a Subject To transaction. I’m not saying you can’t do one because many people have successfully completed one, but I just want you to be aware that it does require a little more work than a common conventional deal.

So with all of that being said I wanted to address a few of the finer points of the subject to transaction. One of these issues has to deal with performing kitchen table closing.

I highly recommend that you close everyone of your subject to deals with a closing attorney.

When you close with an attorney it adds a high degree of credibility and will reduce the chances of a seller coming back down the road claiming you ripped them off. Always remember that just because you helped some sellers out of a tough spot doesn’t mean they will always remember it. There have been many reported incidents of sellers claiming some investor tried to steal their house from them. The truth is that most of them were all kitchen table closings. While investing does mean you have to take a risk; it doesn’t mean you can’t take steps to reduce the risk, and closing with an attorney is one of those steps.

Credibility is everything within the business world and closing at the kitchen table just doesn’t have the same degree of credibility. Now I am not saying you can’t close using a kitchen table closing because many successful investors have, but I don’t recommend it for the beginner and I personally recommend using a closing attorney.

You want a subject to transaction to appear as much as a conventional sale as possible. This one action alone stands out in the mind of the seller because seller’s think of closing attorney’s and think of a conventional sale. Many investors who are new to using this method are taking a huge risk by performing a kitchen table closing. All you need is to make one mistake and you will see how fast it can come back to bite you. Once again it is completely up to you if you want to use an attorney or not, but as an experienced investors I recommend you always close with an attorney.

The final issue I would like to discuss: The so called benefits of the properties you buy not appearing on your credit.

While this is true you still have to remember that the loan will be in the name of the seller. You will screw up the seller’s credit if the payments are late or by letting the property go into foreclosure. When taking on a subject to deal always remember that you should treat each loan as if it was your own.

The reason this method has been in the news lately is because many investors have misused it and caused harm to the seller’s credit and their own credibility. This can hurt your own business and even end up with a lawsuit being bought against you. So if you ever lost the property to foreclosure it wouldn’t affect your credit, but it would affect the sellers and you don’t want that to happen.

I would also suggest that you please make sure you can cover the payments on the property for at least a period of six months.

I have seen too many investors fall into serious trouble when they discover they can’t afford to continue making the payments. Some of you may be thinking that I can sell a house within that time, but the fact of the matter is you just never know. Remember you are responsible for keeping the payments current, repairs and everything else. You should plan ahead to make sure you can survive the tough times in case they happen.

You should also know ahead of time what your exit strategy is before you buy the deal.

For instance:

Are you going to rehab the property?Are you going to rent the property out Are you going to sell the property with owner financing?

If you know how you are going to sell then in the end it can save you a lot of pain.

There are many other items to discuss, but I can’t address them all in one post.

The main thing to remember when performing a subject to transaction is…

…credibility is everything and follow thru on the promises you make to the sellers.

I would also advise that you educate yourself by reading material on how to use the subject to technique.

Authors such as William Bronchick, Matthew Chan and William Tingle all discuss the subject to mortgage in great detail.

If you like this post, let then let The REI Brain know.   I would love to write other articles if you have found value from this one.

I wish all of you well with your investment futures. Thank You.

Josh Houghton

Real Life Real Estate Blog

http://www.realliferealestateblog.com/

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Hoped you enjoyed Josh’s take on purchasing real estate “subject to”!

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