Part of being a real estate investor is knowing how to think outside the box.
the box- creating a good investment using your head.
Pop quiz (think about this and answer it before you continue reading):
Is there a way for a property to not produce monthly income?
can it still be a good investment for you?
The answer to this is yes, depending on what your goals are and what
where you are in your investment life.
Normally, I would never buy a property if there was no income to
offset the cost. This is common sense.
But what if the seller were willing to give you his house, without
initial money – and allow the loan to be left in your name while the deed
is transferred to yours.
It sounds too good to be true? Not necessarily.
Why would someone give you the keys to their house along with the
deed and walk away with the loan still hanging there as your
responsibility? After all, it is giving a stranger control of your
credit.
These are the reasons I’ve heard: bad memories at home, job loss,
divorce, wanting to move to a new location, owing more than the house
will be sold, with no capital to pay a real estate agent, being transferred
out of town tired of owning house needs more work than it
have the money or the time to.
When you buy a house with the existing mortgage or remaining mortgages
it is instead called a “subject to” home purchase. In other words,
subject to existing liens.
Most mortgages have what is called a “maturity of sale clause,” which
it essentially says that if the deed to the house is transferred, the bank
You can call the due note.
This is a risk you run when you buy property this way.
I only mention it in the interest of full disclosure. never has
It has happened to me or to one of my clients or friends, and that’s how we buy
very often So do most builders or real estate agents who offer a
Guaranteed sale program. If builders and agents had to get loans for
charge their vendors under these programs, they would quickly stop doing so
offering them.
Also, banks like earning assets. As long as the loan is paid
on time, they usually don’t care who pays for it.
Now that we know a reason to avoid this approach, let’s list
of the reasons why it’s great…
1. It does not affect your debt ratio.
Lenders will often talk about your debt ratio: the amount of money you
coming in versus the amount of money going out, when
tries to qualify you for a loan. Homes you buy using others
people’s loans don’t count or show up on your credit, freeing you up
ready to use for other things.
2. It does not require money from your pocket.
Most sellers who are willing to make a transaction like this are
they are in a hurry to move on and are generally not motivated by money. I have
he never gave a seller any money for a house bought this way. they are
usually happy to have their problem resolved.
Also, none of the houses I bought were subject to
foreclosure: they were fed up with landlords or people whose houses
did not sell with real estate agents in a time frame that suited them.
3. It’s a great long-term investment and a tax break.
Let’s go back to our previous question: “Is there a way for a
property that does not produce monthly income can be a good
investment?”
I have bought “subject to” houses that rent for the exact same
amount as the monthly payment. Now, I have to dip into my savings if
you have to do repairs in the house, and you should always have
rentals that need repairs. However, I consider these “subject to”
be a good deal in the long run. What happens when my tenant makes the payment
on the loan in the name of the previous owner each month? The loan
it gradually pays off. I eventually have a free and clear home with
no financial risk to me.