Subject 2 is a way to buy real estate without applying for a home mortgage loan. This financing option requires buyers to assume mortgage debt from the property owner. Real estate investors often use Sub2 contracts when selling houses to buyers with less than perfect credit.Subject 2 is a great option for buyers unable to qualify for a conventional home loan. The property owner transfers the real estate deed to the buyer who becomes responsible for paying remaining loan installments. Loan documents remain in the original mortgagor’s name and the new buyer piggyback’s off their good credit. Instead of entering into a high interest bad credit loan, buyers can take advantage of assuming low interest payments. Buyers should engage in credit repair strategies so they can obtain financing within a year or two.The primary purpose of entering into a Subject To contract is to let buyers buy a house without a down payment or credit check with the intention of refinancing the loan into their own name as soon as their credit allows them to obtain financing through traditional means.Entering into Sub2 contracts requires both parties to engage in due diligence. Sellers should obtain financial records to ensure the buyer is financially capable of paying home loan installments. When buyers default on the note, the note holder is responsible for missed payments or runs the risk of losing the property to foreclosure.Most Subject 2 contracts require buyers to submit loan payments to the servicing lender. However, some sellers require buyers to submit payments directly to them and they will submit payments to the loan provider. In this scenario, buyers run the risk of losing vested funds should the seller default on the mortgage loan.Subject 2 contracts should be drafted by a real estate attorney to minimize risks for both parties. Sub2 contracts are used in place of bad credit lender loan mortgages to give buyers time to restore their credit rating. Buyers should refinance into a conventional home loan to purchase property rights as quickly as possible. In order to be legally binding, Sub2 contracts must be recorded through the court. Subject 2 records the transfer of property rights to the buyer. However, property rights are “subject to” the buyer adhering to contract obligations. If buyers default on their agreement, ownership rights revert back to the seller and the buyer loses all funds invested into the property purchase.Sellers determine the duration of Subject 2 contracts which typically extend for 2 to 5 years. At the end of the contract, buyers must apply for a home loan or obtain financing through another source such as hard money lender loans.Hard money loans consist of high-interest loans provided by private real estate investors or investment groups. This is a risky and expensive option for borrowers with bad credit. Therefore, buyers who enter into Subject To contracts should carefully strategize the ability to obtain financing in the future. If buyers cannot obtain financing at the end of the Subject 2 contract they could end up being in default and run the risk of having property rights transferred back to the seller.When mortgage notes are refinanced the buyer is responsible for costs typically associated with entering into a home loan. Common costs include loan points, home inspections, property appraisals, mortgage insurance, homeowner’s insurance, realtor commissions, legal fees, and closing costs.
When you’re going shopping for real estate in the middle of an economic recession you can pretty much guarantee that whatever you purchase, you’re going to be able to make a profit. There are certain parts of the country that take a little longer to be affected when a recession strikes, but sooner or later every place is going to start to feel the pinch-which means you can basically stick a pin in the map when you’re trying to decide where you want to make your investment.Of course, just because you can make a profit just about anywhere doesn’t mean that you shouldn’t take measures to maximize that profit. If you were sitting in the middle of a giant room of sweets that were yours for the taking absolutely free, would you go for the Godiva chocolate or the M&Ms? When you have the choice between a property that you’re going to make a minimal investment on and a property that you will make an incredible profit on when the economy starts rising up again, go for the property that’s going to bring you the best return!Where are you going to find the best deals? Urban properties and homes in the suburbs of these urban areas are always more highly in demand than those that require a lengthy commute to get to life’s essentials. Homes in the suburbs of Washington, D.C. are going to sell for a greater profit (and much more quickly) than a home in a small town like Rexville, NY. (Don’t worry if you’ve never heard of it-most of the rest of the world hasn’t either!)When you first begin investing it’s usually recommended that you pick a property close to home, where you know the neighborhood, the general ambiance and, most importantly, what sells! If you choose to do your own rehab this is particularly important, as there are many areas in the country that are particularly prized for their historical value and which will bring a much lower return on your investment if they’ve been stripped and decked out in the latest style than if they’d been carefully restored. An experienced rehabber will know this. A beginning investor will not.Other factors you may want to take into consideration before closing the deal are:o The quality of the neighborhood. Unfortunately, all urban areas have their slums. An area with a high crime rate, a wide-spread amount of graffiti and property damage, regular drug activity and daily visits from the police is going to be much less desirable to a prospective buyer than a home situation in a nicer part of town, where they can safely allow their children to step out the front door without having to worry that they won’t come home.o The condition of the house. There have been many, many investors that have plunged right in to the world of real estate and rehabilitation and bought a handyman’s special only to discover that by the time they got done paying for the repairs to the property the profit margin was considerably less than what they were hoping for-and what they would have made investing in a property that needed a little less work.Before you commit to buying a property, take the time to have the home inspected carefully. Certain factors, such as a leaky roof, faulty foundation, termites and extensive mold, are going to be both difficult and expensive to fix. Unless you can quite literally get the property for a song, justifying the amount of time and expense you’re going to put into the restoration project, it may be best to allow that one to pass you by.o What you plan to do with it afterwards. This is probably the biggest factor when it comes to real estate investing, because what you plan to do with the property after you purchase it makes all the difference when you’re determining what types of properties are suitable and what are not. If you’re planning on rehabilitating a property, then reselling it as a single family residence, purchasing a small ranch house on the edge of the city may be a perfectly profitable proposition. You’ll likely be able to sell the property for more than you paid for it and justify the investment.On the other hand, if you’re planning on renting the property out you’re going to want to investigate the current rental rates of the neighborhood before you’ll be able to determine the success of the investment with any degree of accuracy. There are some areas where income based housing drives the average rental price of the neighborhood down, which is good news for renters but could result in major inconvenience for the investor who has paid hundreds of thousands of dollars for a property that they are only going to be able to rent for a couple hundred dollars a month.The moral of our story? Take the time to carefully consider your options and do your homework before closing the deal, no matter how appealing that deal may be.Of course, if you’ve been investing in real estate for the past ten years none of this is news to you! Experienced investors who are familiar with things like market trends and identifying weaknesses in potential properties will find the buffet of low priced real estate spread out before them a tempting proposition, and reaching beyond their immediate demographic boundaries may offer a new wealth of possibilities for tremendous profit gain.Just remember that investing during a recession is a slightly different proposition than investing when the economy is booming. You’re going to hear me say this over and over again, because it can’t be emphasized enough-when you’re investing in real estate during a recession you’re investing in the long term. Many of today’s real estate investors have made their fortune in the market by taking advantage of today’s “Now, now, now!” mindset and investing in and disposing of real estate in a very brief amount of time. When the economy is strong it’s not at all unusual for an experienced investor to be able to purchase and flip a property within the space of a week-experienced rehabbers in a month of less. Any property that you invest in during a recession may remain in your possession for several months before you are able to realize a maximum return, because the whole point of investing during a recession is to purchase an asset at the lowest price possible and sell it when the economy goes back up.It’s rare for the experienced investor to find themselves in this situation, but it’s entirely possible to spread yourself too thin when the temptation of pages upon pages of available property was just too much to resist. Suddenly they’re responsible not only for the amount they’ve paid for the initial investment to purchase the property in the first place, but for the taxes, rehabilitation and maintenance required to keep it maintained and prepare it for sale.Try to limit yourself with a realistic expectation of what you can afford in the long term. If as the recession continues you find you have more than enough capital in hand to pick up a couple more properties you always have that option, but disposing of a property you can no longer afford during a recession can be more difficult than taking a submarine and going diving for Atlantis-which is the reason that investing in real estate during a recession is so lucrative to begin with.
When choosing a home, it’s important to choose a location very carefully. Depending on whether or not you have children, and the ages of your children, you may choose a quieter area, over a more condensed city setting. Similarly, if you enjoy relaxing, and appreciate fishing, swimming, and other water sports you may want to consider living on or very near a lake.Buying real estate that has access to water is a fantastic investment. If you choose to live in the property, you and your family will be able to enjoy a variety of activities the entire year. Just a few of them are ice-skating and ice fishing in the winter that will give way and soon be replaced by fishing, hiking, swimming and other exciting water sports in the summer. What’s more, the breathtaking views lake living provides will surely provide a relaxing and romantic setting 365 days a year! If you aren’t planning on living in the house, real estate on a lake is easy to rent for vacations. Families are always looking for reasonable and beautiful properties located on lakes to bring their children to for the summer months. Additionally, lake houses tend to appreciate in value when well taken care of, making real estate located on a lake a worthy investment for years to come.Enjoy the many benefits of real estate on a lake. Whether the initial investment is for you and your family and you choose to sell, or you keep the property in your family for many years, lake living is a special treat that is enjoyed by people of all ages.