Grant explains everything investors must know about the subject to buying strategy from overcoming the seller’s fears to wrapping another mortgage around the current one. He deep dives into this highly profitably tool available to all investors.
Subject to is a strategy within the owner finance umbrella. You are buying a house subject to someone’s current mortgage staying in place. When you are buying the house subject to the house stays in the current homeowner’s name, which allow investors to not have multiple properties in their name. If the buyer puts the house in their name, it impacts their credit.
You are making payments on behalf of the other person.
Subject to is an acquisition model, not a disposition model. You will buy subject to, not sell subject to. They must be prepared for the mortgage to stay in their name for the remainder of the mortgage.
As an investor, create the seller Avatar. Create a seller avatar and write it down on a piece of paper. Write in 3 columns on a piece of paper. Situation: write down everything about the seller’s situation. Fears: Write down everything about the seller’s situation. Solutions: Write down the solutions to all the fears.
3 Steps: Listen, Solve, Explain. Discounted offer means that the investor must pay less money. For example, it is like going to Wal-Mart to get a gallon of milk for $0.99 or going to 7-11 and get a gallon of milk for $1.99, you pay more for the convenience.
Listen to the seller to overcome their fears. Customize your pitch to the hero. The homeowner is the hero. Negotiating tactics work differently for different people. If you give the 3 options on the deal up front, you lose the chance for rebuttal if you put out all three offers up front.
Listen then present the offer that you think works for them. If they resist, ask why.
Common pain points to overcome for the seller. What if you don’t do what you said you are going to do? What happens if I go get a new mortgage? What if the Due on sale clause is activated? What are you going to do with the property once you have it? What will happen if you don’t perform? Are they concerned because they don’t think they can legally do something? Or they don’t have the legal resources to do something?
Due on sale clause is a provision in a mortgage contract that requires the mortgage to be repaid in full upon a sale or conveyance of partial or full interest in the property that secures the mortgage. You want to do everything you can to avoid forcing the lender’s hand. The banks are aware that wraps are going on and they have the “Due on Sale” as protection for them. If due on sale is called, everyone must work together. Explain to the seller that the hardest part of the deal is finding the asset to buy. What we are doing triggers the “Due on Sale” clause. The bank may at their option, call for the remaining balance to be due upon sale of the property. As a buyer, tell the seller the way I make money is that your mortgage is at 4%, I continue making payments on your behalf, and I will charge the person who buys it more than the mortgage payment that I will be making.
What will happen if you don’t perform? If the fear is fear of performance because of the financial implications propose to them why would I put several thousands of dollars into an asset that I am going to lose. What if their fear is powerlessness (No Legal Power)? If I don’t do what I said I was going to do, then you can foreclose on me. You are always at the top of the totem pole. What if you don’t do what you say you are going to? Take the hypothetical that I buy your house. I am going to put in several thousand dollars. I am going to fix it up and find an owner. Assume I fail to perform after 5 years, during that time I’ve paid your house down for 5 years, have rebuilt your credit, more than likely your property is worth more. You now have more equity, caught up payments, and a fixed-up property. If your worst-case scenario is better than the situation you are in now, what is your hesitation?
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