Tag Archive for: subject to

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What’s an Example of a Subject To?

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Subject to deals are unique (and potentially confusing). Here’s a subject to example deal – what the process should look like from beginning to end.

Why the Seller Wants a Subject To

A subject to starts with a seller who has a problem. Either they can’t make payments on their property, or they need to move ASAP (got a new job across the country, etc). They can’t sell the property as fast as they need to; or maybe they could sell, but paying 6% realtor fees and 2% closing would leave them upside down.

The seller would rather have someone else take over the property and make the loan’s payments. This saves the seller’s credit and helps them avoid foreclosure.

A subject to helps a seller get out of a messy situation.

Closing the Sale

Once you find a seller, you’ll need to set up your terms. You’ll go through a typical closing, so you can get a title report and check for any existing liens.

You’re responsible for any liens on the property. They may have a first, second, or judgment lien that would become your responsibility. You don’t want to get stuck with a property whose value is way undermarket.

Payment Example for Subject Tos

After closing, you’ll need to set up the payment system to the seller’s mortgage company. Many people use a third-party escrow company. They make the payments to the escrow company, and that company makes the actual payments to the mortgage lender.

A seller’s credit is on the line when they agree to a subject to deal. If you offer to use a third-party company to make the payments, that could give the seller the reassurance they need to go through with a deal.

The escrow company may cost five to twenty-five dollars per month, but it’s a small price to get in on an existing loan with 2.5% – 3% interest.

Read the full article here.

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Now is the Best Time to Invest in Real Estate

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Don’t let a declining market get you down. Now is the best time for real estate investing!

Money is tightening. Inflation is up. Houses are staying on the market longer. So, why is this still the best time to invest in real estate?

This declining market will be one of the greatest opportunities to create generational wealth… as long as you’re ready for it.

Even as a beginner real estate investor, now is a great time to get prepared to make your first real estate investments.

Here’s where you can start.

Real Estate Investing In a Declining Market

You keep hearing that the fed is raising rates, inflation is hitting, and money is tightening. But what does this really mean for real estate investors?

Availability In a Declining Market

As inflation goes up, there’s less money for everyone. Including real estate investors.

This might feel like whiplash from the last ten years. Until recently, there was plenty of money for everyone in the real estate world. Rates were lower, loan-to-values on loans were higher, and money flowed fairly freely.

But now funds are tightening up. This will mean two main things for investors:

  1. Lenders will require more money down
  2. They will have higher credit score range expectations for borrowers.

Now is the perfect time to prioritize your credit score. Improving your credit score by thirty percent will put you in a fantastic position moving into this next market.

Purchase Opportunities in a Declining Market

Rates are going up, money’s tightening… but inventory is growing. Soon, the cost of homes will drop. 

You want to buy right at that moment, as money is shifting down but properties are shifting up. Sooner or later, the market will shift back. 

When money gets easy again and prices go up, you increase your cash flow and net worth because you bought in the declining market.

Inflationary times are not a negative for investors. As long as you’re prepared, now is the best time to invest in real estate. If you can get money, you’ll be one of the few people out there looking for deals. Five to ten years from now, you’ll be reaping the benefits in big ways.

Loans for Real Estate Investing with Tightening Money Policy

Tightening money policy is what we call it when central banks raise the federal funds rate.

When this occurs, what’s happening to the money? And what loans can you still get for real estate investing with tightening money policy?

Changes to Expect for Loans with Tightening Money Policy

If the pool of investors and borrowers for banks is a box, then tightening policy shrinks that box. Not as many people can get in. Lenders are more particular about who they’ll lend to and how much they’ll give.

There are a few main ways this will impact loans for real estate investing.

Credit Score & LTV

The two biggest changes are that lenders will offer a lower loan-to-value and require a higher credit score.

LTVs have lowered from 80% down to 75% on average. For example, let’s say you found a BRRRR property for $100,000. In the recent past, you could get an $80,000 loan fairly easily. Now, you’re more likely to get only $75,000.

At the same time, credit score requirements are going up. Many lenders are increasing their accepted credit score range by 20 to 40 points. If a 700 score could get you a good loan last year, you might need 720 or 740 for that same loan today.

What does this mean for you? With tightening money policy, here’s what you need to be prepared:

  • Higher down payments
  • A better credit score
  • Lower debt to income ratio
  • If possible, more investment experience.

Real Estate Investment Loans Moving Forward

In the short term, as LTVs go down, you’ll need to put more money into deals. As rates get higher, cash flow goes down.

But in the long term, buying now with housing prices low means higher profit once prices rise again.

Investors who can qualify for real estate loans now will have a huge advantage when the market shifts again.

Talk to other investors. Find out which lenders are still active in your area. Though banks have less money to go around, investors who can get themselves in a good position with credit, income, or a funding partner will be able to take advantage of the market.

Remember: now is the best time to create generational wealth through real estate investing.

How To Get a Loan For Real Estate Investing in 2022

You’ll want to take advantage of this best time to invest in real estate. But with money tightening in the second half of 2022, how do you get a loan for real estate investing?

Where’d the Money Go?

Over the past several years, a lot of money was flooding the market from hedge funds. Now, a third of those hedge funds have backed off. Banks interest rates are being tightened by the fed to have more reserves. Hedge funds and banks want to figure out where the market is going before putting more funds back in.

So, who is still lending during this time? Some banks, especially investor-friendly local banks, will still have some loans available. Other options, like private money also have more restrictions than usual but can still be a good option during this time.

New Real Estate Investing Lender Relationships in 2022

Things are changing in the real estate investing world. As an investor, you need to be more proactive. 

It was easy before – lenders would market to you to get their loans. But over the last few months, rates are skyrocketing, LTVs are plummeting, down payments have increased from 0-10% to 15-20%… and loans are fewer and further between.

It’s as if investors have had control over lenders – able to tell them what they want to do and when they need the money. Not so much now. Lenders have less money to put out, so they need to be pickier. For success, make yourself an investor they pick.

The Best Time to Build Your Team of Real Estate Investment Lenders

The best way to get a loan for real estate investing in 2022 is to build up an array of lending options. Spend time creating a larger pool of available funds. Now (before fund availability totally plummets) is the best time to create partnerships and positive relationships with the real estate lenders in your area.

Our prediction is by the first quarter of 2023, the really good deals will start to become available. Get prepared now with good relationships with small banks, local private money lenders, and OPM lenders.

Real Estate Investing Tips in This Market

Although this is the best time to invest in real estate, the typical investment strategies – fix-and-flips and BRRRR rentals – might be harder than usual in the upcoming market.

Our real estate investing tips for this market are to look into subject tos and owner carries.

Investing Tip: Subject Tos

Subject tos are coming back into fashion for real estate investors.

Some people recently got fix-and-flips, expecting prices to stay up and buyers to keep bidding. But soon, this easy market will come to an end, and sellers will have a harder time getting houses sold. Owners in this situation may be open to setting up a subject to.

A subject to is when you take over someone’s mortgage on a property. The owner can’t make payments, they can’t sell with a dropped market, and they don’t want to go into foreclosure. So you can take over the property and the mortgage – without the loan going into your name.

So instead of struggling to get a loan in this market, you can pay the loan that’s already on the property. You get better rates, and you can get a property with little to no money down.

Investing Tip: Owner Carries

Owner carries are a bit less common than subject tos because an owner carry requires no existing mortgage on the house.

In an owner carry, the seller needs to own the property free and clear (the most common example is when a home is willed after a family member dies). 

A client we worked with had a seller in this position. The seller was going to put the money from the sale in a bank account to gain interest on it. The buyer requested an owner carry instead, where she essentially made mortgage payments to the seller. 

The seller got a 5-6% return instead of the 1-2% they’d have gotten at the bank. And the buyer got the house without the struggle and high rates taking out a bank mortgage.

Now is the best time to invest in subject tos and owner carries. Everyone is looking for a better rate, and some people will be needing an exit strategy with their properties in this upcoming down market.

Invest in Real Estate with No Money Down in 2022

In the down market from twelve years ago, we helped several families buy ten properties at great values with no money down. Now, one of those people owns eight of those properties free and clear. Both the values and the cash flow on those properties have quadrupled. 

2022 will be another chance to swipe up some properties at a lower cost for zero down, if done right.

Set Up Money to Buy – Cash, HELOC, or OPM

When property values go down, interest rates go up. When it flips back, property values will go up, interest rates will come down, and you can refinance. 

Refinancing when the market picks back up increases your cash flow. It also increases the value of your asset and will enable you to take out more money later.

But before this market dip, you have to be prepared.

Put aside any cash you have. Get a HELOC now, if you have an existing mortgage. Set up partnerships with people you know who have money. 

People near retirement are hit with inflation just as much as you. They’ll get a higher return by lending securely to you. Having the power of other people’s money will give you the freedom to purchase properties during this time of opportunity.

Now is the best time to prep to invest in real estate… before property values go down.

Now Is the Best Time To Invest in Real Estate

This down market will likely be around for a couple years. It can be the best time for real estate investing – even for beginners. 

Start your prep now, keep an eye out for active lenders, and be ready when the market brings great opportunities.

If you can adapt with the markets and adapt to the new flow of money during these tight times, you’ll be able to have a successful, wealth-generating real estate investment career.

If you’re just starting out, or if the money side of investing is not your thing, let us help you!

Reach out at HardMoneyMike.com.

Happy Investing.

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Subject To Real Estate Investing for Beginners: Opportunities for 2022!

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What are the opportunities available to you with subject to real estate investing as a beginner?

A “subject to” is when you buy someone’s property subject to them leaving the mortgage on the property. You become the owner, you receive the deed or title, and you take over the loan.

It’s still the same loan, in the original owner’s name. You’re not assuming, or refinancing. They keep the loan on the property, and you just make the payments.

Should You Do Subject To Investing?

How is a subject to beneficial for you? The property’s existing mortgage will likely have rates close to 2.5-3% – rather than the 6% rate you’d get on a new loan. Also, in a subject to, you assume no additional debt.

Most subject tos are made for rentals, lease options, or contractor deeds. A subject to property is not a great place to flip. When people are willing to do a subject to, the reason they’re not selling the property is they can’t get the price that they want at the speed they want. So they have to get rid of the property this way to avoid wrecking their credit for future loans.

The Money Side of Subject Tos

We’ve seen clients with 50 – 200 subject to properties. Subject to real estate investing is a great way to build a portfolio without using your credit, and without maxing out your loan opportunities with lenders.

Sometimes with subject tos, you’ll have to give the owner of the mortgage some money to give over the property. There are also occasional fix-up costs, depending on the condition of the property.

Why some people don’t want to jump into a subject to is because they don’t have the $5,000 – $15,000 start-up costs to get into it. We recommend looking into OPM as a way to cover these costs and take advantage of subject tos.

You’re getting the cheapest possible financing on a property, so it doesn’t matter much if the loan is still at 100%. Making monthly payments continually brings the loan down. And you’re free from many other financing and closing costs.

If you get a long-term renter, or someone who wants to do a lease option and put some money down, subject tos can become a great source of cash flow.

Subject tos are going to be hot as foreclosures pick up, selling times slow, and people can’t afford to fix up their properties. They are one of the best ways to take advantage of a down market and build a large real estate portfolio.

Read the full article here.

Watch the video here:

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How to Create Wealth with Subject To Real Estate Investing

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Setting up a subject to deal right opens the gate to more money in your real estate investment career. Now, here’s how to take it from a system that generates cash flow to a way to create generational wealth in real estate investing.

To Make Money, Go Big

Volume is how to truly create wealth in real estate investing. Subject tos can be easy and relatively passive, so it’s possible to stretch yourself from five to ten properties to 50 to 100.

But to go for volume, you’ll have to be less picky with the amount of money you put in a deal.

You might have to bring in some money to help the seller move. You may have to fix up a few things in the property. Or you could need to carry the payments for a few months while you find a good renter.

Using OPM to Create Wealth in Real Estate Investing

The number one investment strategy we recommend here is to bring in an OPM partner. This will be a person who’s willing to put in $10,000 to $50,000 in exchange for a portion of rent.

This partnership will allow you to expand quickly. Your partner gets a 5-6% return on their money, there’s still no money down for you, and you get the speed and flexibility that cash gives a subject to.

We have a history of helping people with this part of the process. You can get the start-up cash that will allow your to create wealth by investing in real estate. Reach out at HardMoneyMike.com.

Read the full article here.

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Subject To Real Estate Investment Strategies to Build Your Portfolio

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It’s a big opportunity. What are some investment strategies to make subject tos happen?

With a subject to, you buy a property subject to the seller leaving their mortgage on the property.

There are several benefits of subject tos – but how do you make it work? What are the right investment strategies to successfully get a subject to?

Subject To Strategy #1: Going Through a Proper Closing

First of all, still go through a proper closing on subject tos. You want to make sure the owner doesn’t have any other liens you don’t know about. When you take ownership, you become responsible for any existing liens on the property.

At the very least, get a title report to verify there are no liens. If you want, you can get title insurance – an extra cost but potentially worth it.

Subject To Strategy #2: Adding Your Name and Avoiding Problems with the Mortgage Company

With subject tos, some people may say you’re not allowed to take ownership and make someone else’s payments. They fear the lender may call the mortgage.

But we’ve never seen a lender ever call a mortgage in this situation.

The main reason is because the lender usually doesn’t break even with the loan until year three or four.  When a lender originates the mortgage, they buy it, so it takes at least three years of payments to get their money back.

So as long as you pay on time and don’t cause friction, the mortgage company should have no problem with you taking over. They make money every time you make a payment, so they have no reason to call it off.

Subject To Strategy #3: Negotiating with the Seller

Sometimes you’ll have to negotiate with the seller for them to go through with a subject to.

Maybe they’ll need a payment of $5,000 – $15,000 to be able to leave. Maybe they’ll include terms that they’ll only keep the mortgage on for five more years.

It’s helpful to know when a seller is in a position that they’ll want a subject to. A subject to takes place because the seller, for whatever reason, needs to sell the house but can’t. They don’t want to be stuck with the property, and they don’t want a foreclosure or missing payments to ruin their credit.

If you make their payments for around 12 months, they can usually qualify for another mortgage on another property without this one hurting them.

For more details on real estate investment strategies and setting up subject to deals, reach out to us at HardMoneyMike.com. We have plenty of experience, and we want to help you build a real estate portfolio without worrying about your credit or income.

Read the full article here.

Watch the full video here:

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How to Make Money Real Estate Investing in 2022

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You’re here to make money. How do you make money real estate investing in 2022?

The real estate market has changed. The economy has changed. The money side of flipping has changed. If you’re a newer real estate investor, you might be feeling hesitant right now.

We’ve been through over twenty years of markets. We’ve seen many markets that look similar to ours in 2022.

Take our word for it: here’s what will make you money this year in your real estate investment career.

4 Real Estate Basics That Can Make You Money in 2022

The best real estate investments are the evergreen basics. Here are 4 consistent ways of creating cashflow — if you do it right based on your market.

1) Flips

Buying, fixing, and then selling properties is a common investment strategy. But to make money on fix-and-flips in 2022, you’ll have to focus carefully on the numbers. Flips make money in one lump sum, not in a steady cash flow over time. So in tougher markets, it’s important to make that large sum count.

This year especially, we recommend staying in the medium to lower price range for your flips. We’re still seeing people selling well in the medium price range. Larger properties, however, are feeling a lot of pressure in this market.

For flips, focus on the numbers and stick to medium price ranges. (More on this later in the article).

2) BRRRR

Buying and fixing up rental properties is another of the best real estate investments. But BRRRR is taking a bit of a hit right now due to interest rates. Interest rates have more than doubled since the beginning of 2022, which will seriously impact your cash flow.

You can still make money from BRRRR properties this year, but you’ll have to be extra careful with numbers. Know your credit score, know your interest rates, and know the rent prices for your area.

3) Subject Tos

A “subject to” is when you buy someone’s property, take over their mortgage, and make all payments, but you don’t assume the loan. The property is in your name and you have ownership, but it stays financed by the seller. 

Subject tos will be great opportunities in 2022. You can walk into a property where the rate on the mortgage is still 2.5% – 3%, potentially with renters in place. This will bring a much higher cash flow than if you started from scratch on the open market, where interest rates are almost double that.

Using subject tos is a great way to grow a big portfolio using someone else’s financing. (You’ll see more about subject tos in 2022 later in the article).

4) Notes

Another great tactic for real estate investors this year is to use your money in deeds of trust or other private lending.

Rates have gone up, but banks still haven’t really raised CD rates. If you have some money sitting in an account, notes are a good way to get a higher return. You can lend to other investors through gap funding or a more long-term agreement. Notes are becoming big in real estate again, especially with the market in 2022.

Passive Ways to Make Money in Real Estate in 2022

Maybe you feel like you want to use 2022 as an opportunity to tap out of the active flipping game. But, you also don’t want to lose the chance for real estate cash flow. We’ve got three good passive real estate investing options for you.

1) Subject Tos with Rentals

Subject to rentals will be a pretty safe bet for passive real estate income this year. With a subject to, the loan is still under the original financier’s name. You’re just making payments, so the mortgage won’t cloud up your credit.

It’s relatively easy to add 5 – 10 properties to your rental portfolio without adding more debt to your name. If you put these rentals in with a property management company, you can still make a good amount of passive cash flow.

2) Private Notes

Deeds of trust or private lending is a reliable, secured, passive way to put money to work in real estate. With notes, you lend your money to friends or other people in the markets who are looking for funding – and you don’t have to worry about doing any of the work on the property.

Instead of making 1-2% with a bank’s CD rate, you could double or triple that by lending privately. We’ve helped thousands of people successfully lend this way, so contact us for more information.

3) REITs (Real Estate Investment Trusts)

Real Estate Investment Trusts work a bit like a mutual fund. You pool your money with a bunch of other people, and the company uses that money to buy real estate. You’re just one of many investors, and everyone earns a return on the properties. 

There are public REITs and private REITs. With public, you can trade on the open market. With private, you have a little more restriction; once you get in, you stay in.

REITs are a great option if you want to invest in real estate but want someone else to manage it. If you’re looking for passive real estate income, research REITs in your area.

Commercial Real Estate Investing in 2022

2022 may be the year you want to venture into commercial real estate. Apartments buildings with over five units, retail space, office buildings, and industrial areas all fall under commercial real estate.

How do you invest in commercial real estate?

One option for commercial real estate investing is to hold or flip just as you would any single-family home. We’ve also seen a lot of people find success with another option recently: buying bigger industrial properties, flipping them, and splitting them up into separate properties to sell.

Cap Rates in Commercial Real Estate

An important number to consider in commercial real estate is the cap rate. All commercial properties come with a cap rate, which is the return you can expect on your investment. 

For example, if you put $100,000 into a property with a 4% cap rate, you can expect a return of $4,000; this is probably an area that pays lower rent. But a $100,000 investment on an 8% cap rate will have an $8,000 return, so the property will have higher cash flow.

Generally, the higher the cap rate, the lower the value because it may be considered a riskier investment. The lower the cap rate, the higher the value because more people are more willing to put more money in. 

People take lower cap rates over higher ones because they believe a lower cap rate market is more stable. It’s like when you put money into a CD – the appeal is the stability, despite the lower rate. People who look for higher cap rates prioritize return over long-term growth or stability.

Cap rates differ city-to-city and within cities. If you’re interested in commercial properties, you can talk to a commercial broker in your area to understand local cap rates.

Two Biggest Opportunities for Real Estate Investing in 2022: Fix-and-Flips and Subject Tos

How you’ll choose to make money in 2022 will depend on you, your market, and your current financial situation. 

But we expect that the two best real estate investment methods this year will be flipping and subject tos. Here’s how you can make money using these investment strategies:

How to Flip for Profit

At the beginning of 2022, flipped homes would sell in a matter of hours, rather than weeks or months. The fix-and-flip experience will be a little different in the remainder of 2022. But flipping is still a great opportunity to make a profit in real estate.

What Properties Will Flip for Profit?

Your best bet for income in real estate flipping will be sticking to medium price point properties.

Some areas – for example, City center of Denver — are still doing great in higher price ranges. People are still selling $1 – 2 million dollar properties with no issues. But in smaller communities, there are fewer people who can afford $600,000 – $900,000 properties.

With rising interest rates, people who were looking in those higher price ranges now need to look a little lower. Medium property prices are also always competing with rent.

Even though interest rates have gone up 5 – 6%, a $150,000 – $250,000 house will still be in a competitive market with rent. As long as they can afford it, people will always steer toward buying a home rather than renting. 

Rent prices aren’t going anywhere but up. We may see changes in the renting sphere as congress discusses hedge funds and other big investors driving rent prices up. But for you now, rising rents could push more people to consider home ownership in the low-to-mid price range.

Flipping Expectations for 2022

When you look at your market, know that 3-bedroom, 2-bath, and garage homes will always be reliable as a seller. People will always be searching for those types of properties for their families.

You’ll find buyers in this range, but be sure to adjust your expectations. In the last market, buyers would make offers within hours or days. The reality of this upcoming market is it might take one or two months to find a buyer. Be patient, take your time, look at your area, and keep an eye out for upcoming foreclosures and other opportunities.

Subject To Real Estate Investing

A “subject to” is when you buy someone’s property subject to them leaving the mortgage on the property. You become the owner, you receive the deed or title, and you take over the loan. But it’s still the same loan, in the original owner’s name. You’re not assuming, or refinancing. They keep the loan on the property, and you just make the payments.

Should You Do a Subject To?

How is a subject to beneficial for you? The property’s existing mortgage will likely have rates close to 2.5-3% – rather than the 6% rate you’d get on a new loan. Also, in a subject to, you assume no additional debt.

Most subject tos are made for rentals, lease options, or contract for deeds. A subject to property is not a great place to flip. When people are willing to do a subject to, the reason they’re not selling the property is they can’t get the price that they want at the speed they want. So they have to get rid of the property this way to avoid wrecking their credit for future loans.

The Money Side of Subject Tos

We’ve seen clients with 50 – 200 subject to properties. Subject tos are a great way to build a portfolio without using your credit, and without maxing out your loan opportunities with lenders.

Sometimes with subject tos, you’ll have to give the owner of the mortgage some money to give over the property. There are also occasional fix-up costs, depending on the condition of the property. 

Why some people don’t want to jump into a subject to is because they don’t have the $5,000 – $15,000 start-up costs to get into it. We recommend looking into OPM as a way to cover these costs and take advantage of subject tos. 

You’re getting the cheapest possible financing on a property, so it doesn’t matter much if the loan is still at 100%. Making monthly payments continually brings the loan down. And you’re free from many other financing and closing costs.

If you get a long-term renter, or someone who wants to do a lease option and put some money down, subject tos can become a great source of cash flow.

Subject tos are going to be hot as foreclosures pick up, selling times slow, and people can’t afford to fix up their properties. They are one of the best ways to take advantage of a down market and build a large real estate portfolio.

What To Do Next?

The real estate market at the end of 2022 will look very different than it did in the beginning. But there are always options for making money in real estate – in any market.

We have plenty of experience in markets like the one we’re now entering. If you need more guidance as you navigate your real estate investment career this year, let us help.

Download our free real estate investment resources here.

Check out the information on our YouTube channel here.

And always feel free to reach out to us at hardmoneymike.com.

 

Happy Investing.