"No Down" Sub2 Deals

Way back in the 1980’s Robert Allen told a group of us that no down deals are every where, but that’s just the beginning. He said, don’t rely solely on no down deals after you’ve got some money. Cash lubricates would be cash cows that are a bit sticky to glue together. So, limiting ourselves to no down deals, will keep us from making LOTS more money off deals that actually take some money to glue together.

I’ve never forgotten that.

Meantime, I’ve always loved learning about ‘no down payment’ financing techniques. And when I discovered the “Holy Grail” of “no down” financing strategies a few years back, I always had options available to me that I never realized were possible before.

Sub2 has been the holy grail for most of my friends, too, who’ve discovered how powerful it is. If we can make $10,000 in four days by flipping a house we only paid twenty dollars to control, imagine our giddiness in pocketing fifty thousand in cash on a nice home ...and only giving the seller just five or six thousand in “play money” for the privilege.

Going back to Robert Allen for a sec ...limiting ourselves to “no down” deals may be necessary for us at the beginning, but after getting some cash in our pockets, we can start negotiating really juicy deals for ourselves that nobody else would dream was possible.

Speaking of dream deals, do you realize that owners of expensive homes are more likely to bail on a house if they have half an excuse... than owners of “bread and butter” homes...? Yes, these upper end sellers know how make money, but like anyone might, get temporarily strapped. These are the same sellers that often believe that they can make it again, and are willing to do what’s necessary today to solve an immediate cash flow problem. And that includes giving us their deed in return for getting out of a loan payment.

Five or six thousand in moving money, debt relief, pain relief, and a chance to regroup is often the right recipe for pocketing what three agents combined could make in a year.

Think outside the box. If “no down” Sub2 deals are fantastically profitable,. imagine what “small down” Sub2 deals can do to grease the skids to wealth...!

If you would like to learn how to do these fast money deals click here: Fast Sub2 Deals

Free Corvette With Purchase ( Sub2 Deal )

Finding treasure is fun! Finding antique bottles lying around in an abandoned house is a joy for me.

My friend Chip and I used to scrounge in abandoned railway stations and old warehouses in Kansas City and find the most fun stuff ever. We scavenged the old dispatcher’s office that had been empty since the 1970’s. I found a hand-made note paper roller that was nailed loosely to the wall. I still have it as a reminder of good times spent scavenging with my friend Chip.

Speaking of Chip, he led me to this secluded little dump outside Olathe, Kansas where we found a rotted box of old, colored glass insulators. I was in heaven. Chip could care less. I still have those insulators. They’re pretty to me. Violet, blue, aqua, pink, brown and white. It’s like Christmas looking at those things. I imagine the history each of those pieces of early artwork disguised as electrical hardware.

The reason I mention all this is that finding treasure is the spice of life. Everyone loves to do it. It’s addictive behavior. Why else would people scour beaches with metal detectors for necklaces and coins...on beaches!!!

Well, Barney Zick wrote once that leaving treasures behind in homes we want to sell will compel buyers subconsciously to buy our houses. They may not even have liked our house the best, but the thought of getting something for free just makes some buyers irrational buyers. We’re talking about leaving pianos, sewing machines, bicycles, rockers and what not. Buyers love free stuff.

My friend John told me once that a week before Christmas one year he had sold three or four houses, but the last one was not selling. So he went to his used car dealer friend and asked if he had any “sexy cars” on the lot. His friend had an old Corvette available. So John bought the Corvette, put it in the garage of the house that wasn’t selling, raised the down payment by a little more than the cost of the car, and had the house sold in two days. He advertised “Free Corvette With Purchase of Home.”

John says he likes to include freebies with his house to make them more attractive. I have always loved this concept. I’ve left antique bicycles and appliances behind before. I’ve also left bedroom sets. It really helps sell a house, when the buyer believes he’s getting something for free.

So, think about what you can “accidentally” leave behind in the next house you try to sell, and see if your days on market are shortened up substantially.

"One Sub2 Ringy Dingy, Two Sub2 Ringy Dingy"

"Is this the party to whom I am speaking...?"

Unfiltered calls are the pits!

Last month I abandoned all heretofore protocols of mine and posted an unfiltered craigslist ad.

Why? I had a friend who had a friend who needed out of her small house yesterday. Frankly, I don't like doing low-end deals, especially, if I can't get the deed, and it's going to be lease/option deal --- and especially when the house isn't that nice.

That's nearly 3 strikes. The third strike would be trying to cover an adjustable loan, on an underwater house. Forget that.

However, my friend's friend needed help so I thought, "Well, if I owned an upside down rental, and needed a way to protect my credit, and I didn't know any way, and I found a guy like me to help me, he would be my hero." So I succumbed. I'm so desperate to be a hero.

I didn't have a buyer's list ready for either a lease/option house, or one this cheap. So I had to scramble to get things together. So, I experimented with the generic craigslist "lease option" ad, based on some proven ad copy I developed from earlier times. However, I left most of the qualifying information out of the ad to get the largest response, in my attempt to remind myself why highly tailored ads are critical to maintain --- and used to avoid having to wade through a bunch of trash calls.

My experimental ad copy worked, but I left out another important ingredient. Meantime, I got exactly what I advertised for...a pile of unfiltered buyers with no money for down payments. Whoops!

The real point of this, is that certain shotgun ads work. However, when it does, we'll be on the phone forever with "Looky Lou's!" who aren't serious (or ready) to actually buy our houses if we don't first say what we must have... Otherwise, we just get the just curious, and the tire kickers, that waste our time.

So what was the missing ingredient here, besides not qualifying with the ad copy?

Why, it was not using voice mail to capture and qualify leads. If we're not using a 3rd party lead capture, then what? It means that we're gonna have to do the screening in person.

In years past I was the "Marvin Milquetoast" of phone interviewers. I all, too often, operated from my heels. I rarely felt in control, or confident about how to cut to the chase. That was then. Not no mo.

Now, I've got one question that I ask every buyer before we get down to business...to see IF we can get down to business, so that I'm not wasting my time personally helping the curious weigh their options at my expense. And what is that "one question?"

You can find it in my creative real estate investing course I call, "Screw The Bank!"

It's my "no credit - no down payment - no hassle" real estate investing system that allows me to find the most anxious buyers and sellers in this market who will let me pocket $30k in 90 days."

Sub2 Demographic Marketing

For the last year I've been experiencing a much lower response rate on my direct response marketing. Frankly, it's my fault. I've gotten lazy. And greedy! Yup! Instead of tightly narrowing the niche of prospects that I wanted to call me, I opened up the spigot and included a larger portion of loser prospects. Well, including a larger number of unqualified leads, just sends the response rate, by percentage, into the toilet. Whoops. I hate toilets.

So, what to do?

First, I had to remember that in today's market, the stigma of being in foreclosure is practically non-existent. Without over stating this point, it's almost a badge of honor for someone to be included in the "bubble market" foreclosure club, as I put it. So why does this effect the sub2 game?

Well, in the recent past, our direct response marketing would attract those who wanted to avoid foreclosure like flies on you-know-what. Today, with government interference with the foreclosure process, and buyers waiting for the next "bail-out option", borrowers headed for trouble will think seriously about squatting in their homes until the last minute, expecting the bank to pay them cash to get out, or....offer them a "rent option" in return for the deed. This negatively effects the motivations of our more likely prospects.

So, what to do, again?

We focus the niche more tightly. We limit our profiles (farm prospects) to just those homeowners that are the most likely to want to save their credit, and not take advantage of the bank...get free rent...and/or a cash pay-out to move. Who are these folks?

These are folks in the upper price point neighborhoods. These folks have more to lose. They have assets that a bank will attach in the event they go into default. These are the borrowers that have too much in the bank for the lender to even consider a short sale, or even a loan modification, in most cases. Do these sellers actually get motivated to give us their deeds?

Yes.

Every price bracket has motivated sellers. However, in the upper price ranges, the sellers are more proactive and practical in ridding themselves of a property they must sell. I'll go out on a limb here and say these same owners have more faith in themselves than the cheaper homeowners have in themselves. As a result, they see themselves recovering faster, taking a step to save their credit, and put themselves into a more empowering position by selling their houses to us...even though we represent a non-conventional approach to selling.

Now, you're thinking, "Wait Jay! How do you make money off of high priced homes that are under water. I don't. I focus on the sellers that have little or no equity, not negative equity. That's the all-important distinction. This also narrows the playing field dramatically. Now, our response rate climbs by percentage drastically, since we're dealing with proactive sellers who need to get out, but have something to offer us --- a title and a tiny bit of workable equity.

BTW, how many dollars of equity is there at 10% of a million? $100,000?

How about 10% of $100,000? $10,000?

Would you say that's about a $100,000 difference? That's why spending our time on skinny deals in the upper price points is so much better than the "bread and butter" deals. The actual dollars are huge, despite the percentage of the deal.

So, limiting our focus on the most likely sellers that want to protect their credit, their reputation, and their immediate financial picture, are the same ones we can make between $100,000 on with a sub2 transaction that can be completed from start to finish with just a few days.

If you would like to know exactly how to make $100,000 investing in high dollar properties without credit or much cash, click this sentence.

"Creating Money Out of Thin Air...the Sub2 Way...!"

Sub2 financing can offer the fastest track to wealth creation ever.

When my family first started investing in single family homes in the late 1960's, credit was THE most important thing to "worry" about, apart from scraping up the 20% for a down payment on a conventional loan. Of course that was for our OWN home, not for an investment property. Trying to get a loan for an investment property was a whole different animal. The rate and terms were worse, AND you had to qualify for the loan as if you were servicing the loan yourself, without considering the rent from the property.

Things have changed since then. What hasn't changed, is the practice of taking over existing loans. This method has been used to get around the qualifying process banks have required since loans were invented.

However, the government institutionalized 'non-qualifying' loan assumptions. Wasn't that convenient? Yes, one person would originally pull their pants down and expose their financials to some bank, and qualify for the Federal Housing Authority-backed loan. Then when it was time to sell, they could just let somebody take over their loan just by signing a couple of documents.

This was technically "subject to" financing, but had no name until after the "Due on Sale" clause was invented. Meantime, there was no income verification and no credit check to take over these FHA loans! Yay. And the original borrower, yes, was still on the hook for the loan...! Nothing had changed. Except...

Eventually conventional lenders stopped allowing their loans to be taken over without qualifying. They included a term called a "Due on Sale" clause. Why did they do this? Because they were losing money when sellers would allow buyers to take over their low-interest rate loans at 10% instead of qualifying for brand new 18% loans. Well, this 8% spread wasn't going to be lost to a bunch of amateurs! Nosirreee Bob!

So, banks scared off the "sheople" (who were otherwise seller-financing new buyers at 10%, instead of 18%) by including the dreaded "Due on Sale" clause in all new loans. Now this clause didn't mean that a bank WOULD call a loan that was not properly assumed, but it just wanted the right to make more money off the new buyer in the event it was profitable for them.

Well, ever since interest rates fell to the point that most seller financed deals were MORE expensive than conventional bank's terms, no bank in their right mind would call in a perfectly healthy loan.

As a result of the lower conventional rates, the DOS clause has been a flaccid threat to anyone taking over a loan the old fashion way.

Now, how do we create money out of thin air with Sub2?

There are two ways (at least), but the fastest way is simply to resell a house for a higher price, on terms to someone who "really" wants your house, who cannot qualify for the "cheaper" conventional loan. This could be for reasons including being new to the community, changing careers and employment, recently losing a house in the bubble market crash, and other reasons that temporarily keep them from qualifying for a new conventional loan without putting up 20-25% down.

So how exactly does this help us create money out of thin air, again?

Well, we're not going to sell a house to a buyer who needs financing from us for the same amount we paid. We're going to raise the price as a premium for our service. Typically we'll raise the price by 10% over retail ----- or if we got the house for 10-20% under retail, we can ensure a FAST resale by offering the house for today's retail value, and then work to get our buyer refinanced as soon as possible. Usually this takes at least 12 months.

The second way to create money out of thin air, is to charge a slightly higher interest rate than what we're paying. This isn't usually a large amount, but it all goes directly to our bottom line.

So creating money out of thin air just means that we created extra "value" out of thin air. We market our houses to a niche of potential homeowners that will pay a premium price in return for the privilege of owning their own home --- without having to qualify for a loan, or even having their credit checked, and most importantly putting up less down than any bank would require.

The value of what we offer is SO POWERFUL that we can actually create value (money) out of thin air!

Meanwhile, our buyers will beg, borrow, and 'probably' steal to give us a down payment and take advantage of what we have to offer them with sub2 financing.

For more information about a turn-key system that will allow you to do this over and over again like clockwork click here: "Screw The Bank!"

There's No "Due On Sale" Jail!

Even if there was a jail for Sub-To "violators", the jail would be empty.

Read my response to a guy who was warning off about 2,500 would-be investors “that banks call loans in on Sub-To investors because they want to make sure they're on the hook for the loan."

Dear So and So,

"I admire your efforts to keep folks out of trouble. And with all due respect to your desire to keep us informed of what banks will and won't do with Sub-To, I can say from experience that banks do NOT "invoke" the DOSC to assure [that] the TRUE owner of a property is on the hook," as you've postulated.

Meanwhile, in the event of a transfer of equitable interest, subject to the existing financing, the DOSC allows a lender to exercise it's right to either call the loan due, or require the new owner to qualify for a new loan, and/or assume the existing loan(s) --- as a practical matter. However, the motivation for calling a loan due, if it's ever happened with a "current" loan, is NOT to mitigate risk, but to otherwise secure a better interest rate on the existing financing, and certainly NOT to create more REO's for itself.

The only reason the banks started inserting the DOSC was because there was a rash of Sellers in the late 1970's and very early 1980's that were seller financing their homes at 10%, because buyers couldn't qualify with the bank's 18% interest rate. As a result, the banks were losing business --- because they wanted 18%. So the DOSC, short of a default, is all about making money, not mitigating risk.

Today, the bank interest rates are very hard to compete with. Seller financing is usually more expensive than bank financing. So Buyers will look to get bank rates as soon as possible.

As an aside, I'm fairly certain that banks know that their rates are generally more attractive than the average seller is offering. So, short of a credit issue, they're attracting most of the potential "profitable Buyers" already.

There's no need to force the rest to qualify, or mitigate risk, or create REO's for themselves. It would make no sense for the bank.

Anyway, I appreciate your conservative approach, but in practice, what you're suggesting just is not happening. If bank rates climb back up to 18%, your scenario may very well become likely, but not before.”

What I didn't mention was that there is already a person "on the hook" for the loan. Yes, it's the original borrower. Sub-To financing doesn't change this.

The bank still has a person it can "go after" in the event of default. So it's not like the bank has lost anything in the transaction. What's more, there is now not one, not two, but three parties that are motivated to keep the loans "current!" It's the bank itself, of course, but also the borrower, and the new sub-to title holder. That's a better position for the bank than what they originally bargained for.

So banks don't deliberately "switch out" borrowers just because they can.

However, if the loan becomes delinquent, all bets are off.

Share this with anyone who claims banks are calling in "current" Sub-To loans.

Up A Tree?

It's just a matter of time before the bank says, "Um, your loan is denied."

Gulp. "Wait I've got 20% down, and a 720 credit score!"

"Yeah, sorry 'bout that, but the appraisal came in short... we want 25% down, not 20%... and... besides --- you're ugly!"

This is today's market. And...unless we've got all cash, and are happy doing one deal a year (or less), we've got to have alternatives.

We've got to be able to buy without banks, or cash, or credit, or a job...and by golly we've got to be able to do it over and over again!

[Cue Mighty Mouse theme song] Sub-To to the rescue!

Back in the early '90's we wanted to buy two board and care facilities in Orange and San Diego counties. But, alas, we were equity rich, but cash poor. And without bunches of cash to put down, we were also essentially credit "sunk".

Banks don't lend money to people who need it. And they don't lend money to people who don't fit their mold. Normally, the bank looks to the business operating data and history to "justify the loans", etc. Well, that's the bad part.

Only one of the two operations was actually "operating". The other one was non-operational, but had a huge upside with good management applied. Unfortunately, we didn't have demonstrable experience operating a board and care facility, and so the bank wasn't interested whatsoever in loaning us money at any price (or terms).

What to do? Somebody in our brain tank suggested just going around the bank. What? Yes, it was suggested that we just give the seller what he wants and take the rest. Well, the seller wanted cash, and we couldn't get it without selling things, and this would take forever! Also, we had to be on title to operate the board and care facilities lawfully.

Our brain tank buddies suggested that we trade properties all subject to the underlying loans, including ours...and just take title to the real esate under the care facilities. Brilliant!

What? Yes, we traded a property with enough equity for their two businesses, and we took title subject-to the loans on the board and care real estate, and the seller took our property subject-to, and later refinanced cash out of it. What's more they turned our property trade into yet another board and care facility to sell for profit.

Problem solved!

Well, we got everything running, and successfully operated two care facilities, and essentially used dead equity from our property to buy two businesses without getting new loan, without coughing up any cash, and operated them lawfully with genuine title ownership. Such a deal!

P.S. If we had been smarter and a little less enamored with our management expertise, we could have managed to keep control of our equity rich property and not trade it up front, but simply got the numbers on the board and care facilities looking good, and used the new credit from our business operation to pay off a note to the sellers. This would have been simpler, and more profitable, but alas, we made money anyway.

In my new course, you'll learn how to buy a business without credit, and very little cash, from motivated sellers.

Jay