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What Houses to Target for your Portfolio and How to Structure Them – Part 1: Subject To
Joe: Hey, it’s Joe Crump. What houses to target for your portfolio and how to structure them. I’m going to do this in three different videos and cover three different structures to use when you’re doing it.
Joe: Structure One. Subject to. Subject to deals, they can be the foundation of almost anybody’s portfolio. They are a wonderful type of deal to get. You go to a seller who’s got a mortgage on their property. They deed you the property so now you become the owner. But you didn’t qualify for their mortgage, they did, you’re just going to make the payments on their mortgage. And you’re going to make it subject to the existing loan. So whatever that mortgage is you’re going to make those payments until it’s done. You just need to make sure that you have enough income on that property to cover the mortgage.
Joe: And the way you do that is simply by looking at how much is my mortgage payment and how much will my rent be if I rent that property. And if there’s a big enough spread in there for it to make sense then you can buy that property and you can keep it for the long term and after a few years, five years, ten years, fifteen years, if you keep that property you’re going to eventually pay it off. You’re going to build a bunch of equity, the values are going to go up, you’re going to get the tax depreciation, you’re going to get the monthly cash flow on that property. You’re going to get the lease option fees if you sell the property on lease option. So you’re going to get chunks of money on that property which will give you reserves to make sure that you can handle repairs or any other, you know, negative cash flow that might arise on that property as the taxes go up and those types of things.
Joe: Eventually you’re going to pay off that property and you’re going to own that as a complete asset in your portfolio that’s going to bring in you nothing but passive income. So subject to deals make a lot of sense. And they don’t cost you a dime to put together and most subject to properties that you take over are in pretty good condition because they still have mortgages on them and usually the mortgages are going to be mortgages that were originally 30 year mortgages and may have been paid off for two years or five years or seven years so they still have twenty or more years left on them which means that the property had to pass an inspection when it was refinanced originally, when it was purchased originally which means it’s probably not in terrible condition when you get it. Not always, but usually.
Joe: And that means you don’t have to put much money into that property to make it happen. So you take that property, you turn around and sell it on a lease option, you make a chunk of money for the lease option fee, you put that into an escrow and you hold onto that money. You don’t spend it. And you get cash flow on your property. That’s subject to and if you buy ten properties that are worth $200,000 apiece you now have $2M worth of portfolio properties and within five years, ten years, the values are probably going to go up enough during that time and the buy down on the note is going to happen enough over that time that you will have at least you know, half of that paid off. Maybe more. Sometimes less. But mostly you’re going to have income on those properties.
Joe: So you could then take, out of those ten properties, let’s say, and you’ve got, let’s say they’re half paid off. So you have $1M worth of mortgages on $2M worth of property. And seven years goes by and now they’re half paid off, or maybe, or half of their equity is paid off. So maybe they’ve gone up in value to $300,000. And they’ve paid off maybe $50,000. So now you owe $150,000. So you’ve got $3M worth of property now. And you’ve got $150,000 in equity in each one of those properties.
Joe: So you sell off half of them. You sell five of them. And you get that money and you pay off the other properties. Now you own five properties free and clear worth, you know, $1.5M free and clear. That’s how you do it without very much work or effort. You just have to manage those properties. And you don’t even have to do that yourself. You’re going to find somebody else to do that work for you. The biggest challenge is finding those properties in the first place and making an offer that makes sense for a seller. And to do that it just takes a little bit of time to set it up. You set up a system. You set up a process that brings in leads on a regular basis and you make those calls and you put those deals together.
Joe: If you like this channel, hit the subscribe button, hit the thumbs up button and go to ZeroDownInvesting.com if you’d like to work with me personally to help you build your business and walk through this process with you together. You can also go to PushButtonAutomarketer.com and find out about my automation system that will automate 90% of your real estate investing business. All right. Hope that helps. Good luck.