Understanding How a SUBJECT-TO Deal Works

This deal's a referral, but please understand how powerful the referral is, 'cause when you get a referral, you usually get the deal, right? It's not a cold call. This woman was in our database and said, call my daughter. The daughter's not behind. She lives in Florida. She is moving to, I think it's Texas. Carole will tell me if any of this is wrong, 'cause she went to visit the house. I didn't. I did it over the phone. The numbers are as follows, and then I'll tell you the communication because it was interesting. And I copied Carola, blind copied her on all the communications so she could just take it as a learning lesson. I have the purchase sales in front of me. They bought it for— this is the only number I'm going to be a little off on. If someone's on Zillow, Carola or Nick knows. I want to say they bought it for 320s or something like that in '21. Bottom line is, here's what the numbers are today.

They bought it for $342,000 in November of '21.

Okay. We're getting super strong comps at $380,000 without considering terms, just like if I want to sell it tomorrow. So when Carola went, Carola got a sense that we didn't know why because they're not behind, but they just wanted to be done and move on. When I called them originally, they're going to go rent. So there's a hint about they don't need the money right now, right? I always love when they say we're going to go rent. We don't know what we're doing in that market yet. Perfect. They owe— I'm going to use round numbers. These numbers are slightly off by a few hundred. They owe $320,000 on the house. The communication I copied Corolla back and forth and this— take some notes. If I don't make sense, just ask me. But what I did with him is what I told you guys to do. I literally typed in the email. He said, there's comps at $370,000 or $371,000. I said, that's if you went on the market. If you did, you'd get, I forget what number I used, 96.5% or 97% of your ask because Carola told me there's a bunch of homes on the market. I used that to our advantage. And then you gotta pay your realtor. So you're gonna net somewhere, I think it was in the high 20s, low 30s. He pulled back on that and I just said, well, that's how I'd operate it. You don't have to deal with showings, you don't have to deal with anything. Because again, Carola gave me a hint that they just want to move on. They don't want to do showings and all that crap. So I offered them the balance on your mortgage plus $31,000, no interest, no payments in 48 months. That's the offer I gave them. I just did it by email at first. Then it progressed to, okay, let me check around and see. Now they're younger and this is a sub-2. So as soon as they said, I want to check around, I said— and these are all good, like, really important script things for you because you're going to get the same exact thing— I said, okay, if you check around, you're probably not going to run into people that do creative real estate. So why don't I give you an attorney in Florida who does creative real estate? You can meet with him. I'll use my attorney, you can use him. I did refer him to Charles Castellone. I've referred him so many people. He knows creative real estate inside and out. He's very good. Charles met with them 2 or 3 days ago and emailed me privately and said, Chris, they should be fine. I explained to them that I put it in a trust while they own it. I change the beneficiary to you guys, so it should not trigger any due-on-sale or anything. He does it very private like that. This attorney is very conservative. He explained that to them. They had one question. No, they had 2, 3 questions for me on email this morning before they said yes. One was, can you close sooner? I said no, but if you sign it, we're already a week late. We already killed a week, so now we have to push the date out a week. But if you sign it, we'll get going fast and try to get in there faster. But right now it's June 5th, and they'll make the June 1st payment, so we don't have to pay in this thing till July 1st. Um, the payment on that, I, I want to say, is like $16,000 and change. We didn't get the statement back in. I was just going from memory. The other 2 questions were, what is clause 14.5 in the sub-2? So I looked it up. It's the bottom of all the disclosures of the sub-2s, and it talks about releasing us from liability. And I said, it releases us from liability, which is all the clause says. But I said, it's probably a moot point in my opinion. I didn't give her advice because Charles probably told you he's putting this in a trust and it's not going to show any transfer of deed anyway. So she said, okay, thanks for answering. I'm trying to think of the third question. I don't remember the third question. It was something to do with logistics. It was nothing. So that deal gets sent by Doc. They said, send us the Doc sign, we'll get that signed. So Nick's going to put that on the market. I don't know what yet. I'm guessing $389,900. If you do the math—

gosh, gosh, no, that's too low.

Okay, good.

If an identical house is selling— this is good for everyone here— if an identical house is selling like a stone's throw from this property, like within 50 square feet, same bedrooms and baths, uh, for $380,000 today, um, I would— my initial reaction was $399,900. If not, because it's a sub-2, remember we have to take everything into account. Because this is a sub-2 and we don't have a clock ticking on the other end, might even go up to $409,900. But it's nothing concrete yet. Those are all just ideas. Literally 5 minutes before this call, I was able to plug in, look at comps in the area and everything.

Okay. So I'm trying to think of any other nuances. Any questions so far on any of those little pieces? Because they're all things you'll probably hit in a sub-2. And I don't think it would have went if I didn't have an attorney talk to them. I think they would have got squirrely by talking to someone who has no clue and say, no, don't do that. I think.

So, Nick, so since you said it's a sub-2 and you would go up even higher because it's open-ended for on our end, so could you explain that a little bit more of why you would raise the price for that? Because you're not limited to the 2 years?

Good question.

Yeah, that's a great question. That's why I wanted to say it, because my brain, Robert, immediately went to, oh, $399,900, even though, um, yeah, that, that's where it went, just because I know typically when we're trying to figure out a, um, trying to figure out a price that we're going to sell it to a rent-to-own buyer, we We look at, okay, we'll mark it up. We'll take 10% of that best comp and then mark it up by that. However, if we did that, that would put it up at— that would put it up at $418,000. So that's a little bit— that's a little bit too high because it's a sub-2 and we're going to have it forever. I think we would start there. At $409,900. And then if we get— this is all subject to change— and then if we get pushback or a bunch of pushback, which I don't anticipate we'll get, but if we do get that, that's something we can adjust down to $399,900. You will market it as a sub-to or a rent-to-own, but you may just turn it into a rental primarily to begin with? No. Uh, good question. So we're going to— every time, it doesn't matter what type of deal it is, we're always going to sell it on a rent-to-own. Um, and the majority of the cases, 90% of the cases, we're gonna find that the buyer is able to become mortgage ready inside of 24 months. So we're going to end up doing a 24-month lease. I just didn't want to raise it too high. Or this, this is all fluid. This is all happening literally as we speak. So these are all just ideas in my head, just the state of the market and where it is now as opposed to where it has been the past 4 or 5 years. I, I want to kind of hedge against that and not raise it too high. No, I wasn't thinking rent it, uh, just a straight rental. And that's never where my head goes initially.

Let me tack on to that, Robert. What we will do, however, is when Nick has the buyer meeting, we will— after the buyer meeting is done and they think they're going for financing someday, maybe— we'll, we'll put the carrot in there that if they come up higher on their deposit, and we might even push that higher than we normally do, uh, over time, we would consider owner financing them so they don't have to deal with the bank. And I didn't tell you guys, the underlying rate on this is— I think it's like 2.875%. So we could, in theory, finance this to-be buyer. We just, we just started here at— pick a number— 5.5% and be way below the market. 6.5% would be below market without all the fees, right? So we have all kinds of—

However, we, we wouldn't do that until they got to at least, at least 10 or 15% down payment.

I'd say higher. Yeah, higher.

Yeah.

So Just ideas for you guys. There's always a deal after a deal after a deal. Because remember, there's $31,000 due in 48 months. That's not huge. So that might come from another deal anyway if we want to take her out. Might we call her in a year and say, hey, uh, her name is Arden. Arden, you've got 3 years left for $31,000. If we were to come across some money, we're calling all our sellers. How much would you be able to take in the next, like, 3 months? She would definitely discount that. So then we pick up another whatever, $10,000 or so and take it for another deal. So just again, this— I just took 2 pivots on you that created a 4th and a 5th payday. So this, this is a 6-figure deal all day long. It's a matter of how strong in the 6 figures.

And I know— let me, let me say this one point because I know why Robert was asking, because it's for, it's for their deal. That's why, that's why he was asking me about, about if we would have in our head that we would rent it out. There are always extenuating circumstances. So like, for instance, if we put a rent-to-own buyer in there first and then we put it back on the— we took it back over and put it back on the market and we had a clock ticking, then it might be something that we'll be like, all right, well, we could rent for a year and then we'll sell it. However, that's never our first option. If you're stuck, which we've determined, and we've, we've really gave it our best effort, Robert, I would say, for that particular property, renting it out is definitely a consideration to stop the bleeding.

Always. Any of this. Yep. Judy.

Couple things. First, did you make it contingent on a buyer?

I did not. And this is funny because I— she was asking me on email. That's probably— that was the right question. First she asked about showings, then she said— I'm turning to the clause now— then she said, does this mean we got to wait or something like that? So I'm like, oh shit, I better look at what I wrote to her. So I did write to her that I would close it June 5th, and that's why I pushed it way out, knowing that she has to make the June 1 payment. I'm okay till July 1. I'm okay with this house. Selling before July 1st or I screwed up.

Yeah, it's a slam dunk just looking at the pictures from it.

Yeah. So you either make it contingent upon a buyer or you push it far enough out. And quite frankly, if it was coming up at the end of May and the holiday was coming and I didn't have a buyer yet, I'd call the attorney and go, look, I got to do this. I got to do this. It's a holiday. I need another 2 weeks. There's no way they'd back out, right? In theory, I'd hate to have to do that, but you can always extend the closing bare minimum 2 to 4 weeks. Sort of acceptable.

Yeah. Did they say the reason they wanted the closing sooner? Maybe they had already found a rental or something. I don't know if there was, but she was totally fine with the June 5th closing after you said no.

Yeah, I just said no. I said by the time we get it all done, we I wouldn't be able to do that.

Okay. And did you make it contingent on any inspections?

Oh yeah, the standard P&S got signed. So Carola asked me today what's next. I said what's next is Sue's already getting. The documents. Nick's looking at the marketing, and we'll get a home inspection. Corolla will go out and help us with that.

Yeah.

Do you always know it's fairly new, Judy? It's like new. I it's not old. Corolla, it's like a few years old, right? It's not old.

Yeah, it's it's not old at all. It's a very new. It's a very new community as well.

Yeah, I'll still do it, Judy, just in case.

Okay. Yeah. Thank you.

You bet.