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How To Buy One Million Dollars Of Real Estate In 8 Months Using Subject To
Joe: Hey, it’s Joe. This next question is, “How do I buy a million dollars in real estate in 8 months using your subject to method?” Let me define subject to real quickly so you understand what that is. It’s taking a property subject to the existing loan. You’re not qualifying for that loan, you’re not taking out a loan with a bank, you’re not using any of your cash. All that’s happening is you’ve got a seller who has a property with a mortgage on it. Usually a mortgage that’s pretty high loan to value. So let’s say 90% of the loan to value. Let’s just take an example, $100K property that has a $90K mortgage on it that has $1,200/month of income and $800/month payments.
Joe: So you’ve got a nice spread on that property. You’ve got a little bit of equity in the property, it’s maybe got 20 years left of mortgage payments to go. And that person that owns that property, that seller, deeds you the property with a warranty deed. You take that property, now you’re the owner of that property, and you’re going to make payments directly to the bank on that guy’s existing loan. His loan is going to stay in his name. If you screw up his payments, you’re going to screw up his credit. So you have to take a very high level of responsibility when you take on a property like this. I don’t want teach this to people and have them go out there and screw up people’s credit.
Joe: And in fact, if you did that a lot, I knew a guy that, not one of my students, thankfully, but I knew a guy that went out there, he bought a bunch of properties subject to, he rented them out, he took the rent and he collected the rent, but he didn’t make the payments. That’s fraud and that can get you put in jail. He skirted jail somehow. But he screwed up the credit of lots and lots of people doing that. And I think he should have gone to jail. So that’s subject to, and that’s how that process works.
Joe: Now, let’s say you buy $150K properties on average, and you’re probably not going to be buying properties that are subject to for more than $250K. If you buy them over $250K there probably won’t be enough income on those properties to cover the mortgage. So you always want to have cash flow in your property. And then when you buy those properties subject to, you’re going to turn around, usually sell them on a lease option, take a chunk of money, maybe $5K, $10K, $20K as a lease option fee that you’ll put in an escrow account for a rainy day. You maybe spend part of it, but most of it’s going to sit in that escrow account for a rainy day. And you’re going to let the buyer make the payments on that property over the next three years. They may exercise the option and you make that spread of money, and you sell the property. If they don’t, you keep that property, put another person in there, another lease option buyer, get another $5K, $10K in cash, you know, do any repairs that need to be done, keep that property, continue to get the tax benefits, continue to get the buy down on the note every month, and continue to get the depreciation on the property for your taxes as well.
Joe: So, all those things benefit you during that time. So, let’s say you do this with $150K property. If you buy eight of those in one year, that’s one every six weeks, is all you have to find to be able to do that. And if you’re using, if you’re constantly bringing in new leads using for sale by owner, using other sources, you’re going to be able to find subject to properties that you can do that with. I’ve had so many of my students buy way more than a million dollars in property in one year. Sustainable properties. Properties with cash flow. Properties that made them a chunk of money when they purchased it.
Joe: These aren’t just zero down deals we’re doing. We’re actually making cash at closing, you know? We don’t want to buy these properties unless we get cash at closing, either from the seller or usually from the buyer. So that’s how you do it.
Joe: It doesn’t, this isn’t rocket science. You just need to set up your pipeline to make that work. Now, it’s going to probably take you three or four months before you get your first, before you learn how to do your first one, but once you get that done, there’s no reason that you can’t buy a million dollars in properties within the next few months after that. And I’ve had lots of students who have done that.
Joe: All right. Good luck to you.