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Maximizing Profit: Buying with Subject-to and Selling with Fix and Flip

Hey everyone, this is Grant Camp here with today’s session on buying properties with the subject-to method and selling through a fix and flip strategy. Let’s dive into when and why you might use these techniques to maximize your real estate investments.

Understanding the Subject-to Method

Subject-to is simply a way to acquire properties. After acquisition, you have several options:

  • Renting
  • Fix and flip
  • Wraps

This series focuses on the fix and flip approach.

Short-Term Holds and Seller Concerns

Sometimes sellers are uncomfortable with their names remaining on a mortgage for an extended period. Your job is to negotiate and ease these concerns.

However, if a seller won’t budge, offering a fix and flip could be a solid compromise. You can assure them you’ll buy the house on a subject-to basis, fix it up, and sell it quickly on the market. This method buys you time while affording you discounts from listing agents and title services.

High Equity Opportunities

High equity in a property presents an irresistible opportunity. Say you can take over a house for $88,000, and it’s worth $250,000 but needs $20,000 in repairs. Buying it subject-to enables you to spend a bit on repairs and then sell it for a huge profit.

Low Equity or Undesirable Neighborhoods

In cases of low equity or less desirable areas for owner financing, fix and flip becomes an excellent option. If you buy at 80% value, subject-to lets you account for selling expenses and still turn a profit, even in areas you wouldn’t typically invest in.

Cash-Poor Situations

Sometimes immediate cash flow is necessary. Dallas-Fort Worth’s hot market ensures that well-priced and well-renovated homes sell swiftly. If you need quick cash, fixing and flipping offers a short-term solution. Even if you invest $20,000 in a property but stand to make $50,000 on a retail deal, that’s a worthwhile return on investment.

Financing Considerations

Using private money for your deals can be beneficial. If you’re looking at properties requiring a small rehab or needing short-term financing, fixer-uppers are ideal for involving private lenders. Always ensure to pay back your private money lenders, maintaining integrity in your relationships.

Evaluating the Whole Deal

Whenever you consider going retail, evaluate the entire deal. Tools like the Creative Cash Flow Whetstone can help. Sometimes a retail sale might offer a quick cash gain but compare it to potential consistent income from owner financing or rental. Balance immediate money with future money, as cash flow is key to sustainable growth.

Building Your Crew

For a successful fix and flip:

  • Closing attorney: Ensure proper acquisition handling.
  • Title company: Set up for the selling phase.
  • Insurance: Cover the property during the fixing phase.
  • Rehab Crew: Have reliable contractors for renovations.
  • Listing Agent: Choose flat fee or full-service agents for the best market price.

Utilize referrals from local real estate clubs, or from the Creative Cash Flow resources page.

Contractual Considerations

Avoid putting strict timelines in your contracts. While discussing with sellers, hint at a timeline but avoid binding yourself legally to it. Markets can be unpredictable, and long-term flexibility is crucial. If a timeline is necessary, aim for at least a year.

Setting Proper Expectations

Always act with integrity. Only promise what you can deliver and clearly communicate your plans to sellers. Let them know that while a fix and flip is the plan, market conditions could shift, altering the final approach.

Final Thoughts

Employing the subject-to method and fix-and-flip strategy can be powerful tools in your real estate investment arsenal. These techniques allow you to acquire properties creatively, maximize profits, and maintain flexibility in varying market conditions. 

Always ensure to address sellers’ concerns, build a reliable team, and evaluate each deal comprehensively. By balancing immediate returns with long-term growth and maintaining integrity in your dealings, you can successfully navigate the complexities of real estate investments and achieve sustainable success.

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