Subject To "financing" still works in this down market!In fact there so many prospects willing to give us their deeds its ridiculous. Of course most of these folks are also way under water equity-wise, and we have to be just as choosy over what we're willing to accept as we ever were. After all we're taking title and taking responsibility for paying a mortgage that doesn't have our name on it!
[The portrait above is called "Subject". Hey it's close to "Subject To" in name -- and reflects the non-conformity of creative financing, huh?]
Notwithstanding, SubTo is NOT a hard sell right now.
I overheard an investor in 2007 say that, "Sub2 is dead in this market." Now we understood what his reasoning was even without hearing anything else he said. His reasoning was typical of amateurs who don't have an adequate understanding of the SubTo financing tool. Nevertheless, we knew exactly what he was thinking.
What he was thinking was, that prices were correcting too fast, and too far, to make a profit flipping a house using SubTo financing. If not that, then he probably thought that he couldn't seller finance a property and wait for a new buyer to refinance in the typical 12 or 24 month time period, because the house wouldn't appraise well enough by that point. Ho hum.
Sub2 is meanwhile an extremely valuable, effective and simple, if not an aggressive financing tool, but that's what it really is --- a financing tool. And since folks with equity in their houses still need to "Get out of Dodge" every month of every year in every cycle ---- for any number of reasons ---- regardless of the market, then we'll always have opportunities to solve yet more problems using SubTo. What solves people's problems faster than a cash buyer? Nothing, except SubTo financing! It's a beautiful thing.
The issue then isn't that SubTo can't be used to finance our deals in a down turn, or can't be used to finance long term holdings in a down market. No, that's not true. The issue is locating those desperate anxious sellers (which are the only ones we talk with regardless of the market), that are ready to deal and give us the equity we need to both protect their credit, make a quick transaction, and allow us to make a profit by offering appealing down-line terms and financing to our desperate anxious buyers waiting in the wings. Simple.
Someone might ask, "Isn't your marketing, prospecting and buying requirements stiffer now then they used to be?" My answer is, again, "No."
Everything is the same including the critical necessity of knowing what current "retail" is in our farm. The amateurs crash and burn all the time, because they don't drill into the farm consistently enough to really understand values in a particular farm --- if they work a defined farm in the first place.
Knowing our farm values allow us to effectively and dramatically re-educate the seller regarding his opinion of the value of his house. The problem remains for the amateur investors that don't know their numbers and are effectively unable to negotiate the sweet deals we do --- in any market. It's all about negotiations and facts supporting the negotiations.
I can just hear someone say, "Jay, you mean that negotiations are the only barrier to successfully using SubTo?" Pretty much. Along with a tailored direct market list of the low LTV homeowners that are ready to deal for whatever reason (usually inexperienced homeowners that get themselves into financial trouble within months of buying).
And I'm saying that these types of folks are everywhere. However, we've got to get to them before the competition does. And the best way to accomplish this hasn't changed a bit.
So, is this is a GOOD time to put our SubTo financing to work with desperate anxious sellers in this market cycle?
The answer, in a word is, "Yes!"
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