19 Oct Ep. 74 Subject-To Investing with Jeff Coffman of Sub2Empire.com
In this episode, REALTORS® Adam Kruse, Shannon St. Pierre, and Connor Klenke talk to Jeff Coffman of Sub2Empire about Subject-To investing, which is a method of purchasing properties while leaving the sellerʼs loan in place. Find out how Subject-To investing helps to avoid paying closing costs twice.
Email questions to PODCAST@HermannLondon.com
Adam Kruse – https://hermannlondon.com/realtor/adam-kruse/
Shannon St. Pierre – https://hermannlondon.com/realtor/shannon-st-pierre/
Connor Klenke – https://hermannlondon.com/realtor/j-connor-klenke/
Jeff Coffman – https://sub2empire.com/
ITUNES – http://goo.gl/rs1q9X
Website – http://hermannlondon.com/
Facebook – https://www.facebook.com/HermannLondon/
Twitter – https://twitter.com/HermannLondon
Instagram – https://www.instagram.com/hermannlondonrealtors/
Address – 7350 Manchester Rd, St. Louis, MO 63143
Phone Number – 314-802-0797
Search For Homes on http://www.wizah.com/
Theme Song by Trastornobeats
Produced by Joey Vosevich
1:49 Adam introduces Hermann London REALTOR®, Connor Klenke
2:40 Jeff was previously on episode 62 of the podcast talking about being the victim of serial squatters. Jeff gives an update on the situation
7:55 What if Jeff had squatters now during COVID while evictions are not allowed?
9:10 What is Subject-To investing? Is Subject-To investing a scam?
10:30 Is Subject-To investing the same as assuming a loan?
12:18 What is Jeff’s preferred method of Subject-To investing?
13:55 Taking the property in a trust vs. LLC
15:30 It is recommended to get an attorney involved
16:00 What is the benefit of putting the property into a trust? Will the bank call the note due?
17:00 The number one way of avoiding the due-on-sale-clause is simply to make payments
18:00 What kind of time frames does Jeff put into his agreements when it comes to when the seller leaves and the exit strategy?
19:00 There is currently a shortage of lumber and the cost has doubled
22:00 What are the risks to the seller? Do tax liens and utility liens stay with the house?
23:00 Personal judgments will not usually follow the house
23:30 Does the original home owner make money off of this deal?
24:20 Subject-To investing is a way to avoid short sales and avoid damaging the seller’s credit
26:10 What are the ideal numbers to do a Subject-To deal? Jeff likes to stay in the 90% loan to value range
28:00 Jeff will make a deal with negative equity if the home will cashflow as a long term rental of at least $300 a month
29:10 What is the great retail divide?
30:00 What is the benefit of a seller doing a Subject-To deal? Does Jeff ever give the seller cash to move out?
31:00 Are there any loans Jeff stays away from? Jeff advises staying away from reverse mortgages because there are frequent occupancy checks.
32:00 Jeff is currently working on a 2 family property with a tenant in the lower unit. What are the details of the Subject-To deal on the property?
36:00 Jeff met with the lower tenant first
38:00 It can be hard for a self-employed investor to get a loan because they don’t receive W-2s
39:00 If you can get into a deal where the rate is 6% or less, that is essentially free money
40:00 For the homeowner the main risk is if the investor doesn’t make the payments.
41:00 The biggest question homeowners have before doing a Subject-To deal is will they be able to buy another house
43:30 What happens if a Subject-To investor stops making payments and the loan goes into default? What is a deed in lieu foreclosure?
44:30 Inside of the trust agreement there are instructions on what will happen if the payments are not made
45:50 How does Jeff handle rehabs? How does Jeff structure his LLC deals?
49:00 Is there a title company Jeff prefers for his Subject-To deals?
50:30 What does Jeff’s team look like?
51:20 What is the benefit of Jeff’s wife getting her agent’s license?
53:20 How does homeowner’s insurance work when doing Subject-To deals?
58:00 What is the benefit of doing Subject-To vs an “as-is”?
1:00:30 It is good for agents to know Subject-To investing is an available option.
1:01:00 Join the Subject-To Real Estate Investing Mastery Facebook Group (https://www.facebook.com/groups/sub2empire/)
Welcome welcome everybody to the St. Louis REALTOR Podcast I’m your host Adam Kruse broker owner of the Hermann London real estate group here with my co-host somewhere on the screen is Shannon st Pierre hello extraordinaire we also have kind of today a third co-host Connor Klenke everybody knows Connor he’s another Hermann London realtor but Connor is super interesting and are interested and interesting and all of this kind of like what i call sort of underground real estate type of stuff and of course we have our special guest jeff Coffman here because today we’re going to talk about subject to deals and my wife said what’s that and i said well you can watch the episode honey you guys might recognize Jeff because we’ve had Jeff on episode 62 of the podcast talking about serial squatters and while we met you that day about that we found out you’re kind of a subject-to expert and so we said we wanted to have you back so um Jeff thank you very much for being here first of all for having me i appreciate it yeah absolutely you’re very interesting so before we get into talking about subject to um we were wondering if you would just give us an update actually on the whole serial squatter situation sure it’s kind of funny yeah i don’t like being called an expert in anything when I’ve when i had something like that happened to me because it’s really uh it’s really a humbling experience where they’re at right now we kind of followed them around a little bit about three weeks after uh we finally had them evicted we found out that they were trying to buy a house uh over here in saint peter’s 350 thousand dollars pulling the same type of stuff but i think because of this podcast because of the news story that went out i think a lot of people caught on to it and what ended up happening is they they bolted to Atlanta i don’t know if i can only uh surmise that the reason they moved to Atlanta was because they expended their uh their resources here and i found out that they were living in a uh kind of a luxury apartment down there in Atlanta so um i was contacted gosh it’s been it’s been a couple of months now i couldn’t tell you an exact date by the state attorney general’s office um and was the state of Missouri yep um they have been charged with between the two of them 16 felony counts of um one is theft by deception and i forgot what the other one is called something that i’ve never heard of before their court dates are in November so um we’re moving forward with that i don’t really have a whole lot to do with that it’s kind of um you know the states thing and i i do i do praise the state for for actually following through with that i i thought it was a dead you know something dead in the water that i would never hear about again so wow will Missouri somebody actually like go down to Atlanta and try to get them if they don’t show up to court or do you know how that works well he was actually he was actually he had a warrant put out for his arrest so from what i understand i don’t it’s hard to tell it’s hard to to keep track of it i am signed up for the automated notifications on casenet from what i understand though is that um i think he was extradited back here and i think he he’s got he’s got under house arrest here in st louis um she did not have a warrant um pla you know put out for her um so i actually don’t even know where they’re at i don’t know where you know i’m not even sure if you know he’s in st louis or both of them are st louis or not and house arrest so he might be under house arrest in somebody else’s house that he’s pulling the same trick on right you know i i would never put anything past any of them i really wouldn’t i mean i i’m still i’m still kind of blown away by the things that i found out actually one of the lenders that uh that i referred them to i met him at the gym this morning for some reason you know i don’t know maybe it was this whole pod maybe it’s this whole uh thing we’re putting out here uh but i saw him at the gym this morning i found out something new this morning about him so you know maybe you’re just trying to brag that you went to the gym this morning say it again i was saying maybe you’re just trying to brag that you went to the gym this morning could be well they call it covet 19 for a reason and boy i gotta she the lady is not have a warrant because she was never technically on the lease right i don’t know why i think it was um i would be totally speculating here but i think it was more along the lines of um he was i don’t know maybe he was kind of the mastermind behind the deal and uh i i don’t know any charges just in his name or no each of them have eight counts so they that’s all that they could do it is interesting that he’s the only one under house arrest then yeah well that’s all that they could do um so they they could only go back to the last four victims the uh statute of limitations has expired on the ones previous so um you know like i said i’m still i’m glad that that it’s happening um but i do i do tell people like it’s a it’s a weird situation to be in when you know that the actions that you took are um you know putting somebody away potentially it’s a it’s a weird it’s a weird feeling you would think i would just be kind of yeah all for it and gung-ho about it it’s just it is a weird feeling though sure but well that’s where we’re at well thanks for the update and i mean you know the silver lining or whatever if there is one i guess is the timing of this all because it happened you were able to actually a victim which now we’re not able to evict anybody right now as you probably are aware of and you know he’s house arrested now which is like you kind of all are in some ways with quarantine and stuff you know so right his punishment so far doesn’t exactly fit the crime it sounds like but anyway thank you for the update it’s rare that we get to get updates from people on podcast you’re one of our only if not the only second guester on a podcast so all right we’re glad to have you back um but i just wanted just to kind of give a quick intro essentially today we really want to talk about subject twos and you know uh Jeff a lot of times when we’re doing these podcast Shannon and i are kind of either the experts and we’re just talking about it for the you know the benefit of any listener or we have a guest on but we still kind of know about it and so we’re asking kind of informed questions again for the benefit of the listener but selfishly today Connor Shannon nor i are really subject to experts at all i know enough about it to someone says what’s subject to i can say well you take over a property subject to the existing mortgage and then you know that’s about all i know really and so well we were hoping that you would just kind of start from the beginning like you’re teaching an intro to subject to class oh boy uh haven’t done one of those since like February but the easiest way to explain this to folks is is that when you buy a property subject to you are you are going out and first i want to i want to i want to say that this is a normal sale a lot of people think that this is some kind of um well scammy they think it’s scammy they think you’re stealing grandma’s house or something like that and and that’s really not the case but what you’re doing is you’re going out you’re making an offer on a home and instead of when that when that property goes to title and escrow is open and all that good stuff instead of paying that lean off that first mortgage lien or even the second mortgage or whatever they have and it could be other liens as well but instead of paying those off at closing you are taking you are agreeing to take on that property subject to those existing liens meaning those liens are going to stay in place and you are now responsible for for making those payments on those liens and or settling those liens so is it somewhat similar to assuming a mortgage assuming a loan a mortgage you know that’s a great question because no it’s not um a lot of people think that and a lot of sellers will that’s that’s number one question that sellers uh the sellers will have for you is so you know you pitch this thing to them and they’ll say so you’re going to assume my loan and what i like to tell sellers is that no you know first of all you got to be you got to be flat out honest about all this stuff i mean you’ve got to be very forthcoming and because it’s a it’s a risk for a seller no doubt um but what i tell them is that i am not actually going to assume your loan meaning i’m not going to go out and i’m not going to qualify for your loan uh but i what i’m willing to do is i’m willing to assume the debt on that loan i will start making payments for you but you keep it in their name so the difference between assuming and subject to is you the loan stays in the seller’s name and you just start making the payments you got it yeah and then when do you pay off the liens because you’re also agreeing to pay off or assume the liens as well he’s agreeing to pay them let him keep going he’s agreeing to pay their monthly mortgage payment for them until the mortgage is paid off essentially you’re you’re both right um it all depends on the deal that you strike so Shannon uh in your situation or the the kind of what you’re what you’re talking about is do you do you have an agreement whereby you say okay i’m gonna pay your mortgage for a set amount of time and the answer to that is you can do that totally um i have a preference and this year’s a perfect example because prior to march nobody knew anything about what was going to happen here with this whole covid thing nobody had an inkling nobody had a clue and so now i kind of kind of speaking to adam what i do is i will tell these folks you know i would my goal is to get this get this lien paid off as quickly as i can but i just can’t make any promises i can’t give a specific timeline and i certainly am not going to put it in writing because as we can see by uh what’s happened this year there’s no way that you can predict what’s going to happen in you know a year from now so so yes you can negotiate that and yes you can you can agree you know to pay that off in a certain amount of time or you can do what i do and say here’s my goal this is what i’m going to try and do but i can’t make any promises to you you’re putting in writing that you’re going to pay it you’re just not putting in writing that you’re going to pay it off by a certain time is that right correct you got it who stays on title is the seller or do you go on title i will go on title uh there are a couple of ways that you can take title to a property like this you can take you can take it personally if you choose i would not recommend that at all unless it’s going to be your personal residence um you can purchase the property in an llc that you create and i always recommend one llc per property if we go that route my preferred method is to take that property in a trust and put that put that it would be called a land trust missouri actually doesn’t have a statute for land trust so it’s a revocable grantor trust and that’s how i choose to buy these and and uh to ask a silly question you’re buying them all in the same trust or are you starting new trusts that’s a great question uh it’s a new trust for every property okay just like you said you would do a different llc for every property right the only the only thing is uh there is a structure that i like to set up inside a trust that totally simplifies this whole this whole method and what i do is i will create a tr i will i will have i will be the grantor of a trust or the creator of a trust i will have i will name a trustee inside that trust and that property will be deeded into that trust the trustee actually takes title to that property if i’m getting to if i’m getting too into the weeds just let me know because it uh it can be are you the trustee or is the seller the trustee the seller can be the initial trustee but eventually the seller is going to re resign their position as the trustee so we yeah we can get it can get pretty um it’s it seems complicated but it’s really not there’s there’s really two main positions in these trusts that i create sometimes there’s three but i’m not gonna i’m not gonna confuse the subject you have a you have a trustee and then you have a beneficiary or beneficiaries you can have more than one and so using an attorney for that and that’s that’s i would love to uh preempt all of this but let’s go back to the beginning uh you know i would definitely if you’re not familiar with this at all i would definitely definitely get an attorney involved right and like we’d always like to inject we’d uh advise highly to seek counsel legal advice from an attorney jeff does putting it in a trust make it less likely that the mortgagor or the bank will call the loan or is there other benefits is that the benefit or are there other ones is that even true uh there’s well that there is some truth to that um the real truth to uh the they call that’s the do on sale clause and that is the thing that everyone is freaked out about and um everybody just there’s so many different stories about this i personally have never met a single human being that has ever had the note called do that’s not to say that it doesn’t happen um but the bank does have the right no matter what the situation is the bank does have the right if that title changes hands the bank does have the right to call that note due now there is there is some there are some laws in place that prevent banks from calling notes due for things like uh estate planning or inter-family transfers and things like that that has to do with uh planning the estate of the of the owner but otherwise if that if that title changes hands at all 100 percent the the lender has the ability to call that note due that being said lenders aren’t generally in the business of purchasing properties you know they don’t they don’t want to own houses so the number one way to avoid the due on sale clause is to simply make payments that is it they’re they’re there to make money they have investors as well and if you make the payments i i’ve never i don’t know anybody it’s never happened to me i’ve never even been contacted about that so um okay so let’s just go back and now you have so you found the property you’ve worked out a deal with the seller and you to take over the mortgage in the liens when does the seller how long do you typically on average just um keep going i mean what kind of time frames are you putting in your agreements because i mean we’re going that seems quite endless when does the seller leave the home and when does the sale complete well this the the sale is complete just like any other i mean it literally is just like any other closing so you have you know you open escrow if there’s money that’s going to be changing hands the seller leaves when you buy the house just like any like i say it’s a normal sale no different than any other sale um and what was your your question prior to that when you were asking oh what am i putting into my uh my my agreements it depends on the situation if it’s a if it’s a property that is going to need a bunch of work um and my exit strategy is to get in there and fix it up and flip it um then also what i like to say again i i generally don’t put it in writing because right right now we have a shortage of lumber you know it’s hard for people to go to home depot and buy lumber because of all the the shipping issues we’re having right now uh but what i like to say is is double right right that that’s a another great point uh but what i like to tell them is i would like to have this done inside of 90 days um i can’t make i can’t make that promise to you but that’s my goal is to get in here and i’m going to put my money into this thing we’re going to get it fixed up and we’re going to flip it and we like to have that done inside 90 days may take longer it may take less dollars but this you can’t start your rehab until the seller leaves correct until it closes i i wouldn’t put any money into it until it closes so okay yeah and are you wholesaling these flipping these keeping them as rentals like what’s your exit strategy on man you guys have great questions this is awesome uh my exit strategy i highly highly highly recommend that wholesalers i mean you’ll see a bunch of gurus out there that are pushing this right now but wholesaling a property that you pick up subject to is extremely dangerous it is i don’t think that what’s what’s not happening with these gurus that are that are teaching this is they’re not telling their students what the potential legal ramifications are of this and you know you can go through the whole process and you can close on a deal but if you wholesale that off to a buyer from my point of view you have you’re the one that’s made the promise to the seller that you’re going to make those payments and so now if you’re pushing that responsibility off onto another buyer who really has you know i won’t say that they don’t have skin in the game but let’s just let’s just say that generally let’s say that that that buyer that you’ve sold that deal to let’s say that they run into some trouble what is the first thing that that buyer is probably not going to pay for when when the money runs out you know it’s probably going to be something that’s not in their name so i don’t ever recommend flipping a house uh subject to a creative deal to another buyer um i i can’t lie i have done it um and it has gone south and that’s why i don’t do it to the you know today so they could foreclose on that seller originally right the person who has the mortgage well they foreclose on on the title holder that’s who they foreclose on but uh you know so they’re just going to go back in and they’re going to take title the bank will but yes it will negatively affect that seller for sure so you said that the risk is all for the seller is that because the the mortgage stays in their name as well as their liens the liens the leans do not um if it’s a so if you’ve got a first of all like a mechanics lien or anything like that that’s all that’s all uh those are judgments against the house the house itself so it’s gonna it’s gonna stay with a house things like msd which are super liens they’re all gonna attach to the property so you are now responsible for it once you close on it you take title um but it’s not like tax liens because i’ve seen people have you know tax liens against the house because they owe the federal government yep they’ll stay with the house if you always stay with the house okay is there any kind of lane that doesn’t stay with the house uh anything that uh is not a judgment lien so a judgment lien would be um you know the seller’s got some kind of debt that they haven’t paid and then that debtor takes them to court and gets a judgment lien placed against the house personal liens do not they will not follow the house a personal judgments rather will not follow the house unless a judgment lien is placed on that debt on the property and then otherwise all other liens mechanics liens super liens like msd utilities you know government um government liens all that stuff stays with the house which by the way for the seller where’s the risks for the seller because they get out from underneath this house right and i’m assuming by the fact that they’re doing a subject to it’s kind of like an as a sale they get to just kind of walk away they’re not really making any money necessarily but they get out from underneath being in over their heads is that kind of where the subject to comes in yeah that’s really the point behind all of this the the idea is um you know we all everybody everybody’s heard short sales the idea behind subject to for me is that i can go in and i can pick up a property and i really really push the fact that i don’t you don’t have to damage your credit to to sell your house i can come in and i can make those payments in fact i can help you uh with your with your credit situation so my point of view is i would rather not i would rather not send them down the path of a short sale you know if if it’s something that i can uh you know that i could potentially cash flow or make some money on yeah so i was going to kind of ask that Jeff you you know you get a call from someone they want to sell their house you know do you go there planning on doing a subject to or is that just a tool in your tool belt like if they maybe owe too much on their mortgage to sell to you for a reasonable price for cash or whatever or are you always hey i’m gonna do a subject too here well these days my motto is think creative first that i mean i i always go in with the i always go in with multiple offers so but i do always have subject to in my in my tool belt because i’ll tell you there’s a lot of people and especially right now i don’t know if you guys pay attention to you know how many loans have been written in the past decade since 2008 and the interest rate at which those loans are sitting they are extremely it’s like free money you know so um i always think creatively first uh that being said coming in with with multiple offers is uh is you know it’s going to be your your uh it’s going to be your best bet in order you know if you want to get a deal done with them but definitely always thinking creatively yeah i always say the more problems you can solve the more money you get paid so like on that appointment like figuring out a way to give a solution to that seller that works for both of you yeah 100 so Jeff if someone if you think a house is worth 100 like give me an example here the house is worth a hundred they owe 90 and that’s when you do a subject to or like i mean kind of give me the example numbers let’s do that what if they what if they owed 110. so kind of like are you going to walk away at the 110 or i think yeah maybe you say that’s more when you would do it because that’d be more like a short sale situation right it’s worth 100 they owe 110. well first uh let’s establish that you don’t those numbers yes they’re you’re more than like you’re more likely to do a subject-to deal when those numbers look like that but it’s not a requirement some people just uh you know they’re just open open to the to the situation you know they’re open to um letting somebody come in you know i’ve had that before where um i mean i had very first subject to deal i ever did i walked away with a 41 000 check so i mean there was that much equity and it could have easily easily been listed no problem um but i was able to you know come up with a solution for the guy that he liked and um but so numbers-wise i generally come in i i like to stay within the 90 ltv um range anything above 90. loan to value yeah sorry uh so so there would only be 10 equity in that in that deal at that time that’s where i like to that’s kind of like the sweet spot that’s where i know okay i’m probably not going to be able to make a cash offer to this person let’s start talking about creative financing that being said though i have bought houses where shannon you talked about what if it’s at 110 the value is 100 and it’s at 110 there is a percentage that i will go into negative negative equity territory and still buy that house but it the only thing with that is it must it must cash flow it has to like there’s no doubt it you can’t be into this house for um obviously you’re not gonna be able to sell that on the retail market right so uh it has to be a long-term deal you would have to negotiate a long-term deal and it has to cash flow and for me i need i need 300 a month minimum on anything that i buy and hold so when you say you have to negotiate a long-term deal what do you mean long-term deal because you’re you’re your contract is you know up to 90 days preferred so you know 30 60 90 days you close the seller’s out what do you mean what are you referring to when you’re talking about a long term deal you’re saying you’re holding it long term yeah he’s not making that 90 day promise right right yeah and then a situation like that i would i would just tell the seller you know there are brutal truths that that sellers have to know that you know and we call that the i call that the great retail divide where you know if i come in here and you can’t sell this thing on you can’t sell this thing retail whether that’s because of repairs or because you’re you have negative equity in it and you can’t come to the table with some funds you know i’m i’m gonna need to hold on to this thing for a while get somebody in here and let somebody pay this mortgage down for me so that i can then go ahead and and sell it you know retail or other or other ways so you’re not closing in 90 days you’re you’re the seller is agreeing to close in let’s say six months or a year well he’s closing he would say he’s closing he’s just saying i’m gonna pay this bad boy for you for a long time yeah i’m just not going to pay off your liens within 90 days right still closing in a normal amount of time are you giving the sellers any money for this like what’s the benefit for them doing the subject to deal again that’s that’s negotiable um i have paid up to eight thousand dollars um some people that sounds like a lot and some people that doesn’t sound like a lot but that’s like my standard now is that’s my that’s what i’m not really willing to go past at this stage you know um you got to understand too i’m i’m speaking mostly with uh um super super motivated people so um you know would i be willing to go above that now i i would um but yeah you know almost all the time at least i’m paying for moving expenses or um you know for a first month’s rent or their first payment on their on their next deal on their next property rather next home i was assuming that sorry connor i didn’t mean to interrupt you go ahead are there any loans that you stay away from like fha like arms five year arms conventional like is there anything that you’re like not going to do subject 2d alone long term yeah um you can really take anything subject to the only thing you can’t you that is highly advisable that you stay away from our reverse mortgages because there are occupancy requirements when it comes to reverse mortgages and those lenders do actually do occupancy checks so if they find out that occupant on a reverse mortgage has left the property they will foreclose on that property we like fixed rate anything we can do va we can do fha we can do really anything uh we will do arms except you have to know because arms usually there’s a cap most the time on on a on a note on an arm and depending on what that cap is if we know that we can still cash flow if we’ve hit that cap then we can take it on otherwise otherwise no we stay away from arms as well have you ever done a multi-family with it like a bigger other than a single family it’s funny you asked i was rushing to get home today because i just went and closed one uh this morning so yes yeah what is it is it a like two family four family it’s a two-family flat yep right now it’s a little bit underwater the rents are under uh under where they need to be they’re under market but we’ve come to we came to an agreement with a seller on it we literally gave her 500 bucks that’s all she wanted she just wanted out of this thing and the top unit is vacant needs very little work the bottom unit there’s a tenant in there that’s been in there for 20 years that absolutely does not want to move and she realizes that um you know that her rents are probably going to go up and she’s okay with it and yeah it’s great deal super deal i love that yeah so uh and that one would be one that you’ll hold for right yep yeah get in there uh the upstairs needs maybe 2 500 bucks and work um well the lady below she’s it’s uh she’s an elderly lady so we don’t want to um we don’t want to get in that we don’t want to slam her with some kind of she knows a rent’s going up we just want to keep that so that it’s affordable for um and the way that we look at it is if we can have one of those units make that mortgage payment for us the upper unit is just going to be know cash or cash in your pocket cash flow every month and this is a long-term deal by the way so are you willing to kind of go through the terms of that deal or maybe another deal like that people don’t connect you with or something so it’s a little bit more anonymous but can you take us through how you did that deal what the terms look like you closed it today but what are you left with sure um so actually this is an arm as well so this will be this will kind of cover all the bases i i don’t mind going over this deal if if you know if you guys don’t mind we’d love it uh so this was a a motivated super motivated seller she was an elderly lady her husband had passed away 12 years ago and just the sweetest lady ever i mean she she she sang to me we had great conversations and what she told me she called me twice actually because she called me off of uh off of one of my ads and she said if you don’t buy this house i am walking away from this thing i’m just walking away from it and i said okay well let’s take a look at it i went down and looked at it they’ve maintained this house for for elderly elderly people self-managing they have maintained this house beautifully i mean it is in great shape the tenant below has been there for 20 years and even that one is in great shape talking some paint maybe some carpet and that one if they left would be ready to go in a week or two so i looked at her loan there is about fourteen thousand dollars in equity on this the monthly payment on that loan is five hundred and eighty eight dollars she had both the top floor and the bottom floor rented for four hundred dollars a piece so and she was also paying for sewer and water and grass so she was actually coming out of pocket after all of those expenses for these people to live here so i came in i told her and i kind of keyed in on the fact that she said if you don’t take this i’m going to walk away i s and i looked at the numbers on it and i was like oh this is going to be tough you know it’s going to be tough to have to tell tenants because it’s it’s under market rent for sure probably by about six or seven hundred bucks a month and so i said before i agreed to do any of this i would like to speak with your tenants and um turns out one of the tenants was leaving so boom that was like perfect and then the lower tenant i came in and spoke with her and as soon as i walked in she’s like she’s like it’s great to meet you i know i’m not paying enough in rent right now and i’m okay with with an increase in rent i just don’t want to move i don’t want to go anywhere anywhere so so um anyway our like this is still still relatively new too so we don’t have everything completely figured out uh but the way that we’re probably going to do it is we will take so we you know we will take that lower unit and we’re going to step her up over a few months instead of slamming her all at one time we’re going to step her up to to just where it’s going to pay that mortgage payment like i was just talking about and then the upper unit we’re going to go in and put put a little bit of money into it it’s not going to take much at all and we will rent that out at market rate so um so yeah we’re going to we’re going to cash flow about 700 bucks a month on that and we’ve got roughly after all of our money goes into it we’re probably looking at about only about 10k in equity but with that kind of cash flow i am i am totally okay with with that little bit of a little bit of equity in it and this is a good win for you because you didn’t have to basically uh you know still going back to the big benefit of the subject too here was you otherwise could have bought it from her for whatever she owed on it and just had to take out your own mortgage and stuff but your your win there is not having to take out your own mortgage not having to put down a down payment right not having to max out the number of loans you can have or whatever is that kind of the big win yeah i mean you know as a this is a really common problem with with like with full-time investors is you know we don’t we don’t have jobs we don’t have w-2s so it can be really really difficult to get a loan you know alone with at least some decent terms and even though this one was an arm it’s sitting at like five point i think it’s 5.8 5.3875 right now which is if i were to go out and get a commercial loan that’s i would probably pay a little bit higher than that but then i would have to every every couple of years i’d have to uh that that loan would be re-examined by a commercial lender right and have the potential for that interest rate to increase or the terms of that loan changing in some way this is a this is pretty much set in stone so it is a huge benefit i mean the the major benefit and the reason i like it so much is because if you if you can get into a deal where the interest rate is six percent or less you are that is essentially free money you know they’re making you know the lenders making very little off of that but it for you if you calculate in inflation and all those other costs that are kind of hidden away that nobody sees this is this is free money so that’s why i like it so much okay so so let’s go over what the risks are for the seller the risk is the primary risk so i’m going to tell you what the risks are not first and then we’ll talk about the risk so like so all of those liens that we talked about say if there’s some lanes those are attached to the house that’s going to take that off of their off of their plate totally so you’ve now taken on that risk for the seller the main risk is that you don’t make those payments that is that is the risk it’s going to damage their their credit their credit score come out of their name though right the the the property does but the loan does not the loan does not but the property but the liens are attached to the property well the mortgage liens stay in the seller’s name he means like mechanics liens and stuff right right yeah so i should have clarified that yeah yeah the the mortgage lien is going to stay in their name and the all the other liens msd all that good stuff is going to stay with the property so that’s really the only risk that they have and in this situation with the one i just closed on she was willing to walk away from that anyway so that is a no-brainer for me that hey i you know not only can i buy this property at a reasonable price now i can now i can stretch that out and i can cash flow that thing for a very long time and so will you just continue making the mortgage payments until the mortgage is paid off or do you have other terms with the seller to say at x period of time or in you’ll take out a mortgage so that she’s released and or he or she is released from the property in totality so that they can move on and use their credit for other things because i’m assuming as long as that mortgage stays in their name that’s going to go against their ability to borrow money that is a that is a very valid um and forget everything else i said about the most asked question that is that that is the biggest problem that we face when we when we talk about that’s the biggest seller objection you mean yeah yes is how am i going to be able to um buy another house and because this all boils down to debt to income ratio that’s all that it boils down to you can own multiple houses right no problem so this would this would be we’re talking about a dti issue the general rule although there are lenders that will work around this the general rule is that you have a 12-month waiting period from the time that you sell a property subject to to uh to a buyer and that property is cash flowing so there’s got to be income coming off of that property 12 months later you are able to use 75 of that uh 75 of that income to apply towards the debt to income ratio meaning it it’s basically just a wash so if you can prove for the past 12 months that those payments have been been made by somebody else your new lender will wash 75 of those those payments or that that uh that debt from your future you know from your future dti they’re making they’re considering the mortgage payments that you’re making as almost as if a tenant on a rental property is paying them so they’re counting 75 you got it yep yeah so they’re raising their debt or their income portion of their debt to income ratio by 75 of whatever the mortgage payment is right you got it yep uh otherwise it’s really uh you know it’s just one of those conversations you gotta have like yeah yes this is uh this is absolutely a problem and this is why yeah um title so if you stop making payments on a house and it goes into default the mortgage goes into default um is it is the deal written so that the seller the original seller that holds the mortgage can get the property back you can do that um that would be a deed in lieu a deed in lieu of foreclosure type of situation um some people do write that into their agreements uh i would prefer just to because that would be that is a that is just a tough tough conversation to have but um sellers will actually ask for that as well they’ll say you know i can let you do this but you know what happens if you die and or something like that and there isn’t there’s a mechanism um there there are mechanisms for switching that back over to the seller as a last last resort type of situation and that’s part of your trust right i guess they could be like you got it 100 scary if you die or whatever yeah so uh inside the inside of the trust agreement there would be um because you gotta understand the trustee is the one who’s responsible for um the trustee is the one who’s dually sworn to manage that trust and so if you default as a beneficiary we actually have have it written in our trust agreement that it will switch back over the beneficiary will then uh become the the previous owner the seller yep not an ideal situation it’s not something that i mean i if i ever thought that was going to happen i would not even get into the deal to begin with so um yeah i mean no one wants that right obviously because then you’re losing the property and all you got was the cash flow for the time period that you had it if there was cash flow unless it was like a rehab or something right but in theory they could sort of benefit because you’ve paid their mortgage down for whatever period of time that was right and got the property back i guess the real risk there is if you were if it was a big rehab and you did the gut part of the rehab and then stopped paying the mortgage or whatever right and then they they’re left with the worse off property yeah and there’s a there are ways that i i handle that too the rehab stuff so i personally uh kind of i won’t say that i got entirely out of rehabs but after last year i was like i gotta you know i gotta this is not rehabs are not for me right now so um what i came up with there was a way to get the a way to be able to bring another buyer into the picture for very very minimal a very minimal buy-in and so if you guys don’t mind i’ll just i’ll structure that for you and sure it might be something that somebody could uh you know pick up on and use what i’ll do and instead of buying that property in a trust i’ll i will buy it in an llc because i know it’s going to be a quick flip situation i don’t have to worry too much about due on sale or anything like that so what i’ll do is i’ll buy it in llc it pro title gets transferred into that llc and i will sell a partnership in that llc for well i’ll give you an example i did one in six three one two eight um and it’s been a few months now maybe four months ago and what i did was i put an llc i brought a one of my buyers one of my rehab buyers brought him in made him a partner an 80 percent partner in that deal so he now owns 80 percent of that llc the agreement is that he buys into it he paid me like i think he paid me like 2 500 bucks to get into that deal which is a pretty low entry entry point the agreement is that i give him 80 of the llc he is going to bring his cash in and he is going to rehab that house using his money i’m not putting anything else into it and then upon the sale of that property i own that other 20 right he owns 80 of it i am paid 20 of that of the net proceeds from that sale so you’ve got a buyer who’s got skin in the game you’ve got me who’s kind of um i brought the deal and i’m kind of orchestrating everything and the seller’s happy this seller happened to be down in Florida and everything everything worked out great so i can see Connor’s head spinning right now because that sounds like a connor deal to me how much how much equity was in there like like if you don’t mind sharing about about 40 grand wow right right there right around there yeah this guy’s a mother had gone into a assisted living facility and he was in the navy down in florida and it was just a it was a tough situation for him but we knew that if we had to close twice you know if we bought it and then we had to close again um paying commissions on you know each you know each time then it was going to be super expensive so we were able to get in there and get it done and make it good is there a title company in st louis you prefer for these like subject to deals i do uh it’s a small mom and pop shop kind of uh so i don’t know if they would be you’re fine yeah don’t worry about it offline uh yeah but i there are several there are several uh we are very very lucky in st louis um because we have a a ton of investor friendly um title companies i’ll tell you the first few that i did um was with one of the big ones like you guys would 100 know who these are and um i had i had so many problems trying to close these and that’s really where i started learning how to do these these closings myself and and figuring this thing out and figuring out trusts and that’s really where this all came about was dealing with title companies who just they just weren’t aware you know most of your conventional title companies are like well you’ve got to you know we’re going to issue a title policy we’ve got to pay off this loan and uh you know my line of thinking with with that is i don’t i don’t know why a title company that’s just one less thing that they have to insure against so just write that just write that lien out of your policy that’s one less thing you have to you have to worry about covering if something goes wrong later why why would you not write a title policy like that doesn’t make any sense but they don’t you know a lot of them don’t they just don’t know what’s your team look like is it just you do you have like a huge team a small team small lean and mean so it’s mostly just me my wife she’s sitting in the next in the next room we did have i had uh a small rehab crew when we were rehabbing and then i had an acquisitions manager um after last year’s debacle i i trimmed all that was just me and the wife for a while and uh now we’re kind of getting some traction again we’ve got some some really good marketing going out and um so it’s her that she’s actually taking her test to be an agent tomorrow so we’re going to have her have her become an agent what’s the benefit of having her become an agent it’s uh it’s those just referrals so i refer all of my deals that i can’t do i refer them out i’ve got a a specific agent that i refer out to okay and um it would be you know it would kind of instead of referring that out to somebody that and letting them you know have that listing you know we we understand the whole you know so when you refer it out you’re meaning like it it goes to market you’re looking right someone’s willing okay um and then i have a question in regards to buying these properties subject to when you put them in an llc most mortgages don’t allow llcs meaning what so like oh no no right yeah i mean they’ll allow trusts obviously but a uh bank cannot go after the chances of them you know if you default on a loan the whole reason they don’t want in an llc is because they’re tracking someone down to uh we’re talking about two different things here though you’re you’re talking about me going out and buying a property in an llc and that’s not what i’m doing okay right and it’s not uncommon for families to to put a property in an llc you know you have inter-family transfers you have people quit claiming uh properties into llc’s all the time so it’s not like this big huge red flag or anything like that but what you’re what you’re talking about is kind of you’re still you’re still still kind of thinking along the lines of a conventional loan you know and that’s we’re not assuming that loan right um i will volunteer some information if uh if we’ve got some time um go for it because yeah we’ve been on about an hour we do need to wrap it up here in a minute or two but i’d love to hear you know it sounds like you’re about to give us the good stuff i just want to talk about insurance for a minute because this is going to be a huge question and um there’s there’s such a everybody’s got all these different ideas about how insurance needs to be structured on these deals and it is very very basic you would be you would laugh if i showed you these how these policies are built i’m talking about homeowners insurance correct okay you’re going to be required so anytime that title changes hands you have to have a new insurance policy you must get a new policy you cannot amend the old policy and besides that any agent that’s going to try and amend an old policy they’re just going to write a new policy anyway so um the way we set those up here are the here are the goods on insurance the way we set those up is that lender that you are that you’re now making payments to still believes that the previous the previous owner of that property is you know on on title all that they really care about seeing is that that seller is a um is listed as what was what we call additionally insured on a on a insurance policy so they have to see that previous the lien holder’s name on that insurance policy so in the case of an llc what we would do is we would have a new insurance policy built the llc is going to be the named insured the llc is the named insured that they’re the main uh the main person or entity being covered listed below as additionally insured is going to be the seller or the the lien holder on that on that loan and then you can also add additionally insured the person in your office who is going to be dealing with that you know maybe they’re maybe they have to talk to the insurance company or something like that um and you can list as many additionally insured as you like um and you could do like a hard money lender like a lender if they’re if you’re not using your own money on the rehab essentially that’s a different situation that’s a that’s going to be a problem that that you’re going to come across when you’re buying these deals is you’re not going to find many lenders that are going to lend to you if there is a because they’re going to want to be in first position so that is a problem that you need to think about if you’re going to be doing a rehab because either you’re going to have to use some private money there more than likely or you know your own personal money um you know i have a pool of private lenders that i use for those situations that’s exactly what we do but that was like probably relationship based long term you showing them that you’re good for it it is because you can’t no there’s going to be no other lender that’s going to write you a second on a property where where you’re not the primary lien holder see what i mean yeah absolutely yeah personal but insurance insurance that’s how you lay out laid out it’s very very simple it’s probably this would be the second biggest reason why you would ever have a note called do but again if you laid out if you structure it correctly no problems whatsoever awesome so what else do we need to know that we didn’t cover there’s a ton i mean there’s a there’s a lot of a lot of creative deal structuring i mean you there’s just so much you can do with these things um it’s it’s really it’s really more about control you know if you can control it there’s there’s tons of ways to make money on tons and still and you’re still keeping the seller happy you’re still keeping you’re still doing right by the seller you’re you know this is why i love them so much it allows me i’m not a great salesman i i readily admit that but what this does is it allows me to go talk to a seller and be totally truthful with them without having to try and you know close them on any any certain thing i can just be real and honest with them and you know if if they’re motivated enough to do it they’re going to do it and you’d be surprised how many people are open to this it’s really uh it’s really surprising so with that like so why would someone do a subject to versus an as-is yeah you can still do subject to as is so this is mind-blowing this is like awesome yeah so so i could still take over a property and and buy it in as this condition are you talking about just a cash sale where it wipes them and as is as well i’m assuming most your properties are as is but um like you’re taking them over as they are in their present condition where um as is you know where a um you know just a cash buyer you know that are plentiful in that market so you know come along and just buy it clean slate for the seller they get to walk away what would uh um what would be the benefit of doing a subject to versus as is well it all depends on what the number is all numbers so it’s all going to depend on what the numbers look like if it if the numbers don’t warrant me going out and closing on a deal because now i have to you know i have to close it twice i have to pay twice the commissions and all that stuff if the numbers don’t warrant that then you have to go i mean you have no choice but to go the creative route if the money if the you know cash offers are if somebody’s you know you have that opportunity cost if you’re if you have to come off of a certain amount of money now this money that’s that’s out of your pockets not in place so you’re generally offering a super you know you’re generally coming in very low and so it might not uh it might not look as attractive to a seller where if i can come in and i can say i can give you i can give you the asking price that i can give you what you’re asking for this thing i just need to be able to keep that loan in place uh so that i don’t have to close on this thing twice you know um it’s all negotiable every bit of it is a hundred percent negotiable it’s just uh it’s just it’s just wrapping your mind around uh kind of getting out of that that old school thought of you know this is a sale you go and you pay it off and you start you know that’s that’s really what it all boils down to that’s awesome well we i really appreciate your time this has been it’s super awesome here’s here’s where it also um i’m not gonna i’m not gonna talk too much about this but like for agents you know um it’s it’s it’s it’s good for agents to know that this is a an available option this is actually really good yeah i mean you’ve got i didn’t know much about it either on your contract you’ve got uh you know we’ve all seen the seller carry back that’s not it’s not what this is but it is another option outside of that and if you if you want to question the legality of this again not an attorney but i’m going to give you a reference everybody’s seen an alta statement everybody’s seen a hud-1 settlement statement if you go out and look at line 503 on the buyer side of an alta up i’m not sure if it’s actually 503 on the alta but definitely on the hud line 503 is a line specifically for this type of deal okay you’ll also have line 203 on the seller side which references subject to financing as well okay awesome well where’s a good place people can get a hold of you or ask questions if they want to the best place to find me is in our facebook group and that is subject to investing mastery subject to real estate investing mastery and that’s on facebook just go out and look us up uh join the group happy to have you we’ve got about i think right now last count we got about 750 people in that group um also you can find me at sub 2 empire sub twoempire.com awesome.com that was awesome well killer information we really appreciate your time jeff good job that was fantastic i feel like we could do a whole nother episode just asking even more questions i’m game there’s a there’s a lot to know uh there’s a lot more to know about it um i i don’t want to i definitely don’t want to scare people off because it does seem like there’s a lot of moving parts in it but it really is um it really is quite once you grasp the concept and you you you know you understand the immediate the immediate need everything beyond that is totally flexible it’s very you know once you own something it’s just like it’s just like owning any other property once you own it you can do anything that you want with it so it works out i love it man thank you so much thank you very much jeff thank you everyone for listening thank you Connor for being our guest today also and uh we look forward to seeing everyone next time anyone watching we love to hear from you podcast HermannLondon.com thanks guys thanks everyone take care bye