Cash Flow From Investing Do Not Include Cash Flows From Beginning Real Estate Investing – "Subject To…" Investing

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Beginning Real Estate Investing – "Subject To…" Investing

This is another in a continuing series of articles on getting started in real estate investing. Today we’re going to tackle the basics of investing “considering…”. Those just starting out in real estate investing often have a lot of questions about “the subject of…” investing, and this article should answer many of your basic questions.

First of all, it is important that those who are starting to invest in real estate know what investing “With the object of…” is. “Subject to…” means you purchase the property “subject to…” the existing financing remains in the name of the seller.

Say you get a call from a motivated salesperson. He tells you that he needs to sell his house immediately. He also says he owes about $100,000 on his mortgage, and his payments are about $900 a month, including principal, interest and taxes. Even though you are new to real estate investing, you know that the estimated market value of his home is around $130,000.

You head to his home. It does not matter in the least that you have just started investing in real estate. After all, he has to sell now. You tell him that you will take over his mortgage payments and pay them until you sell the house. You don’t know how long it will take, but the mortgage will remain in his name until you sell it.

He asks if you can give him some money to move. Even someone starting to invest in real estate can negotiate such an item. After going back and forth a few times, you agree on $3,000 to be paid to him the day he moves out.

Now, what do you have? A home with an appraised value of $130,000 will pay you approximately $103,000 and a $900 monthly payment. Since you’re just getting started in real estate investing, there’s one thing you need to do right away…market for a tenant buyer.

So, you place an ad in the local paper and put up some signs in Mr. Seller’s neighborhood: “For Sale – Bad Credit OK.” Your phone starts ringing and you find a young couple with a good job and good income who went through a brief period of financial trouble a year or two ago. Explain to them that you think you can help them, even though you are new to real estate investing.

You offer them an apartment rental with a 12-month purchase option. Their monthly rental payment will be $1,200 and their purchase price will be $135,000. They will also give you a non-refundable option fee of $5,000. It doesn’t matter if you’re new to real estate investing – you can definitely see what you’ve just achieved.

You have $300 in positive cash flow per month—the difference between the $900 you pay and the $1,200 the young couple pays you. You’ve also pocketed $2,000 cash right now – the difference between the $3,000 cash you gave the salesperson and the $5,000 cash the young couple gave you. When the young couple takes advantage of the option to buy, you’ll also pocket $32,000 – the difference between your purchase price of $103,000 and the price they pay you, $135,000. Not too bad for someone starting out in real estate investing!

We’ve barely scratched the surface of investing “subject to…” but I think you get the idea. I have more great ideas for you at Getting started investing in real estate.

Make more offers now!

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