Ready to elevate your real estate investing game?
Gain valuable tips and strategies for raising Private Money and leveraging subject-to-deals on the latest episode of Raising Private Money with Jay Conner!
For those of you who may not be familiar with the subject-to strategy, Jay breaks it down to ensure everyone is on the same page. Buying subject to means that the seller agrees to sell their house to you and give you ownership, while you agree to make their payments. It’s not assuming a loan; it’s simply an agreement between you and the seller.
Now, here’s where the real magic happens. Jay explains how leveraging Private Money in 2nd position can be a game-changer for subject-to-deals. Whether it’s bringing past due payments current, funding repairs or renovations, or pulling out equity from the property, Private Money can be used strategically to enhance your real estate investing endeavors.
Jay emphasizes the need to protect private lenders by not borrowing more than 75% of the total loan-to-value and ensuring that private lenders have their own note and deed of trust in 2nd position.
This informative episode is a must-listen for real estate investors looking to enhance their understanding of subject-to-strategy while leveraging the benefits of using Private Money.
Empower your journey to success in real estate!
Timestamps:
0:01 – Using Subject-To Strategy And Private Money
3:23 – Using Private Money In 2nd position explained.
4:38 – Protect Your Private Lenders
6:45 – Jay’s Free Private Money Guide: https://www.JayConner.com/MoneyGuide
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The “Subject-To” Strategy Paired with Private Money Maximizes Your Real Estate Profits
Narrator [00:00:01]:
If you’re a real estate investor and are wondering how to raise and leverage Private Money to make more profit on every deal, then you’re in the right place. On raising Private Money, we’ll speak with new and seasoned investors to dissect their deals and extract the best tips and strategies to help you get the money because the money comes first. Now here’s your host, Jay Conner.
Jay Conner [00:00:29]:
Folks, let’s dive into the topic. How to use subject-to strategy and Private Money combined to do your deals. So for the benefit of you that were not on 2 weeks ago, I’m just going to take a quick couple of minutes and explain what I’m talking about. When would you do it? Why would you do it? What is it? What are the logistics of doing that kind of deal? This is going to be a quick 5 minutes at the most of making sure we’re all on the same page and understanding what we’re talking about here, what do I mean by subject to buying, subject to the existing note, and combining that strategy with Private Money? It’s as simple as this. When a seller of a property is going to sell to you subject to, here’s all that means. There are a lot of, details that go along with it, but just to make sure we’re all on the same page, the seller is agreeing to sell their house to you and give you ownership, give you title, give you deed to the house. And what you’re going to do is agree to make their payments.
Jay Conner [00:01:38]:
And if they’ve got any past due payments, such as somebody that was facing foreclosure, you are agreeing to bring those payments current. Okay? And so then you’re agreeing to keep their payments on time. So buying subject to is not assuming alone. You are not making an assumption. Assuming a loan means it is transferred into your name but the bank or the lender has to approve the assumption, right? The banker, the mortgage lender has got nothing to do with this decision process as to whether you’re buying this house or not. This is a a total agreement, only agreement between you and the seller of the house. Your real estate attorney who would close this deal doesn’t have to create anything. It’s already on the HUD settlement statement on line 204.
Jay Conner [00:02:28]:
And for the funding, it’s called subject to the existing loan. It’s already there, right? So you want to have a real estate attorney who will close sub-two deals for you. Now that’s what it is. So how and why would you combine Private Money with bind subject to? But when you’re buying subject to the existing note, the mortgage that you’re leveraging, you know if that seller’s got an interest rate of 3% or 4%, that you’re now leveraging that. That’s the interest rate you got. So that mortgage that you buy subject to is going to be in first position. That’s in 1st position. Now when you come along with Private Money, your Private Money note will be in 2nd position, also known as a junior lien.
Jay Conner [00:03:23]:
Alright? So why would you put Private Money in 2nd position? Why would you even need or want Private Money if you’re buying it subject to it? Well, you don’t need Private Money on every subject to deal you do, but there’s a lot of subject to deals that I’ve done, Crystal’s done, that we borrow Private Money in 2nd position. So why would you do it? Well, one I already mentioned. If the seller is behind on payments, then you can use Private Money in the second position to bring the payments current. Needs some repair. If the property or the house needs some repair, you can use Private Money for the repair piece or the renovations. Right? If there’s a lot of equity, or enough equity I should say, in the property and your Bob bought it at a big enough discount, you could just put Private Money in 2nd position and pull equity out and pull cash out of that property. So if you do that, that’s sort of like a refinance in 2nd position. Now, the logistics of this is when you can do it and when you cannot do it.
Jay Conner [00:04:38]:
We still have to protect our private lenders. And so how do we protect our private lenders? We typically do not want to borrow more than 75% of the total loan to value. What in the world does that mean? Well, here’s the definition of total loan to value. Total loan to value means you add up the total amount of the loans that are owed on the property, there’s your total loan, to value. And then you divide that by the after-repaired value, or the as-is value if you’re not going to do anything to the property. So for example, for easy figuring, let’s say that we had a house that had a financially prepared value of $200,000, just for conversation purposes. And let’s say the existing mortgage that you’re buying subject to in 1st position is owed $100,000. Well if I can borrow up to 75% total loan to value, then I could borrow $50,000 from a private lender, putting them in 2nd position.
Jay Conner [00:05:46]:
Now my total loan to value, in that example, is to add the $100,000 that’s owed by the 1st mortgage to the $50,000 that is the Private Money, that’s a $150,000, divide that by an after-repaired value of $200,000, Now you have 75% total loan to value. So you always want to borrow secured funds. Do not borrow unsecured funds. You always want to protect your private lender by giving them their note and their deed of trust. We are not combining lenders on the same note or the same deed of trust. So you’ve already you don’t have to do anything in 1st position because that’s subject to. The mortgage is already in place, but you’ll give a new promissory note and a new mortgage or deed of trust to collateralize that private lender in 2nd position. Alright.
Jay Conner [00:06:42]:
So that’s the overview.
Narrator [00:06:45]:
Are you feeling inspired by the knowledge you gained in this episode? Then head over to www.JayConner.com/Moneyguide. That’s www.JayConner.com/Moneyguide, and download your free guide that shares 7 reasons why Private Money will skyrocket your real estate investing business right now. Again, that’s www.JayConner.com/Moneyguide to get your free guide. We’ll see you next time on Raising Private Money with Jay Conner.