When does Subject to make sense?

The problem is real, I see it all the time. You want to sell your house, but don’t have the cash for simple repair let alone improvements. Or you think: “I need to sell my house fast, but how can I afford closing costs?” I’ve talked to many sellers who were told point blank by Realtors that because they have no equity, they’ll need to bring money to closing. But there is another way….

Imagine if you could only sell your house as is, with no fix up at all; sell your house as is with no closing costs. Best yet, selling your house as is fast, Without spending a dime. It can be done. I’m going to show you how it worked for one of my clients In Arlington, TX just this last month.

Sometimes, you can’t truly appreciate the gravity of a situation with out a real world example. That’s why I’d like to tell you about Johnathan. Johnathan had a house that was burning a hole in his pocketbook. He wanted to know: “can I sell my house as is?” “Of course”, I told him, “we can buy any house in any condition”. You know the drill.

After examining the house and neighborhood, I determined that Johnathan only had one option that would keep his money in his own wallet. He had some equity. Many folks with some equity believe they should be able to realize that equity at closing. But it just doesn’t work that way. There are closing costs to pay, Realtor commissions and so on. That eats up your equity fast. Here’s how I presented problem and solution to Johnathan:

My “Dear John” letter

Dear Jonathan,

When I started totaling up the repair work that needs done at 123 Main St, I was a little surprised; it came out to a bit more than I was thinking at first. I’m including that estimate with this package. Also, after driving the area, I came home and ran my comps again making sure to stay in the neighborhood.

My appraisal puts the After Repaired (market) Value, or ARV, at $108,000. My repair estimate came to about $9,000 to put the property in top shape. That included basic cosmetics like carpet and paint, as well as a bit of foundation work, and tracking down the source of water leaks.

I don’t think you’re in a position to accept a cash offer. In order for me to make a profit, I have to take a discount for cash as well as the speed and ease of transaction. Foreclosures usually sell from 30 to 50 cents on the dollar; most wholesalers offer about 65. I usually go about 70. So, 108k ARV X 70%= $75,600 – 9000 (repairs)= $66,600. That’s the best I could do, and I think that would leave you bringing money to the table.

And as I look over your other options, I’m seeing the same thing. You could put a minimum of 5k into fix up, then list on the market trying to get full price. But after the fix up costs, there’s Realtor commissions (6.5k), Mortgage and holding costs for a minimum of 6 months (5K or more), then closing costs (2K). So full price of 108K minus close to 17k (minimum!) in costs, and you’re still bringing money to the table.

You could put it on the market “as is” and get probably 100k. Minus Realtor, holding and closing costs (around 13k minimum I figure), and again you’re bringing money to the table. There is simply not enough equity in the property for you to win at closing. Unless…

The way I see it, the best way for you to get the most out of this property is to either rent it, and take on the responsibility, risk and headache of landlording, or simply to sell for what you owe and allow a competent individual to take over your payments. That means you sell in the 90k range with no costs. You wont have to do another thing or spend another dime. It could be done in as little as 10 days.


Jerry Puckett
Managing Partner
New Refined Images LLC 

972-790-6848 fax

The happy ending…

When he was able to clearly see what his options were, he was able to grasp the sense of the solution. The confused mind always says no. My job as a professional in the Real Estate business is to communicate your options clearly, and Identify the best ones.

In this case, and perhaps in yours also, owner financing (also known as “subject to”, or simply “sub to”) turned out not just to be the best bet, but the only one that made sense. Johnathan was able to sell quickly (within 4 weeks), to sell as is, paid no closing costs, and got instant debt relief. I can tell you there is A LOT of paperwork involved, but that is my problem and not yours. There is also quite a lot of legal mumbo jumbo, but thank goodness you will have me to decipher and interpret.