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Jay Conner has been investing in Real Estate for over 15 years. He typically makes 2 deals a month. He has bought and sold over 400 homes.
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Chaffee-Thanh Nguyen started investing in Real Estate a decade ago. He dramatically changes and impacts the lives of thousands of people around the world as an Executive Success and Event coach with the likes of Powerteam International and Marshall Sylver’s Mind Power Inc. Chaffee also teaches at his own events.
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Listen to our Podcast:
https://realestateinvestingdeals.mypodcastworld.com/11055/what-is-subject-to-existing-note
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Jay Conner (00:00):
We got this house under contract using a strategy called, Buying Subject to The Existing Note. So I'm sure many of you know what that means, but just in case you're listening on, you know, iTunes or Google Play or whatever, and you're not familiar while subject to means, there is a mortgage on the house. The people that are selling the house to us have got a mortgage. It's current. It's not behind. Doesn't matter, you can buy a house subject to the existing note, whether the payments are current or the payments are behind. But what it means is the seller is agreeing or has agreed to sell their house, transfer title, transfer the deed, transfer ownership to my business. We're going to own the house. And the seller has agreed to leave their mortgage in their name.
Jay Conner (01:05):
And I am agreeing to make their payments, their monthly mortgage payments to keep it current. And you know, when I first heard of this strategy, my first thought Scott was, who in their right mind would sell me their house and agree to give me total ownership? These people are moving out of state. I mean, they're going, I'm in North Carolina. These people are moving down to Georgia.
Scott Paton (01:32):
Wow!
Jay Conner (01:33):
Who in their right mind would sell me their house and not get their mortgage paid off and I'm agreeing to make their payments? Well, the answer to that question, the person that will agree to do that is a motivated seller. And there's many different types of motivation. These particular people are just done. If they were to put the house in the Multiple Listing Service, it needs money in order to get it to someone.
Jay Conner (02:02):
So they want to go, they don't want to go through the unknown timeframe of how long is this going to take to get the house sold, et cetera. So, and I want,
Scott Paton (02:12):
The realtors aren't really going to look at this house. Is that what you're saying?
Jay Conner (02:16):
Correct. So we're buying it subject to the realtors have got nothing to do with this transaction. This is between them and between me and my team and my company. And I want everybody to understand that when you buy a house subject to the existing note, that is not assuming the mortgage. I'm not assuming the mortgage. If I were assuming the mortgage, the mortgage would be transferred into my name. The mortgage is not being transferred into my name. It's staying in the seller's name and the bank or the mortgage company, or the lender has got nothing to do with this decision. They don't have to approve me. They don't have to approve you. This is between you and the seller. And guess what? It's line number 203 on the settlement statement. This is nothing that's like, you know, your real estate attorney has got to go make up something on the paperwork. It's already aligned on the HUD settlement statement. And the funding line says purchased subject to the existing notes. So that's how we have funded this deal.
Scott Paton (03:20):
That's pretty amazing. So, you're making the payments. You're not making any down payment and you don't really have a lot of risks.
Jay Conner (03:34):
Correct. So you know, we're doing, my real estate attorney is handling the closing. So this is not like some kind of documentation that we do on somebody's kitchen table, that all of our closings are handled by the real estate attorney. And so yeah, and I mean, a lot of times when we buy a house subject to the existing notes, such as a foreclosure and people are behind on their payments, we have to bring those payments current. But in this case, they're current. And of course they are trusting me and my company to keep their payments current. They've got great credit they tell us. The payments are current. And you know, they're trusting us to keep those, their payments current. Because, you know, a year or two down the road, they're probably going, or, you know, two or three or four years down the road, they might want to buy another house. And this mortgage will need to be paid off before they buy another house. But, that's not their primary concern right now.
Scott Paton (04:30):
So basically, what you're saying is you found this house that people want to leave the state, the house is in the condition that a realtor will look at it and laugh and leave. Basically, they're not going to be able to put it on MLS to sell it. You come along and you say, you know what? I can fix up the house. I can, I'll make you an offer. And part of that offer that they agreed to was, you're just going to take over the mortgage payments. So you don't have a big down payment to make. You've got whatever their mortgage payment is. They're able to say, Oh, thank goodness this house is off of my plate. What a relief that is, now we can go. I think you said down to Georgia and live the life that we want to live or whatever it is they're doing down there.
Jay Conner (05:11):
Well, you just said something, Scott, that triggered this. And that is, when a seller of a house is motivated and their primary motivation is debt relief. You just said the house is, you know, off their shoulders, the mortgage is off their shoulders. It's still in their name, but the responsibility of it, as far as what I've agreed to is off their shoulders. So, a subject to seller is really looking for, I just want to get this payment off of me, so I can get on with my life and that motivation, I mean, somebody, you know, something motivating somebody to do that could be divorce. It could be the loss of a significant other or spouse. It could be the loss of a job. I mean, on and on and on and on and on. Right? And so I can tell you, Scott, just from experience of doing this business since 2003 and rehabbing over 400 houses and doing all these deals, I guarantee you, if I wanted to, I could have asked these sellers to make the next three payments. If I agreed to start with the fourth payment, they would have done it. They would have moved on to Georgia, knowing that all I got is three more payments and I'm done. But you know, enough is enough when we go over the numbers here in a second on this house. I mean, my lands, I don't, I don't need to negotiate that even though I could have,
Scott Paton (06:40):
Well, let's get into some of the numbers, Jay, like how much did you buy the house?
Jay Conner (06:45):
Yeah. So the purchase price is 99,000 and some change, but we might as well call it 99,000 now the purchase price is how much they owe on the house. That's the purchase price. That is the payoff. That's currently what they owe. And now how do we know exactly how much they owe, when I buy it subject to. Here's how, we have the seller of the house, contact their mortgage company or their current lender and ask for what's called, A 30-Day Payoff Instruction Letter. So, we don't just look at their most recent mortgage statement, either that came in the mail or it's online. That's not what's owed on the house. There's some other ancillary fees. So I want to know exactly what's owed on the house. Now, these people, when we asked the question, would you be willing to sell what you owed? Would you be able sell it? Would you be willing to sell it for what you owe? That's the payoff? Their answer was yes to that question. We'll sell it for what we owe. By the way, we never talked subject to over the phone. We don't talk about that until after we'd been to the house, right? That's beside the point for now. So, the purchase prices is $99,000, and that is how much they owe on the house. That's how much they own the mortgage.
Scott Paton (08:11):
So, they just want to walk away from this and not have it be any more of a problem than it already is.
Jay Conner (08:17):
This be done? And they've owned the house for about five years and they've put their own money in it. I mean, there's beautiful stainless steel appliances that they put in like a year and a half ago. There's beautiful new countertops they put in. New flooring that they put in, in some areas of the house. So
Scott Paton (08:38):
So, we're not talking about a shack. We're talking about a nice home.
Jay Conner (08:43):
This is what we call a pretty house. So, you know, as I said, we've got multiple exit strategies to consider here. But the first thing I want to do is just close on it next week. And then, I'll decide what I want to do, but we'll talk about the different. There's two,
Scott Paton (08:59):
It's nice to have more than one option for exiting.
Jay Conner (09:02):
Yes.
Scott Paton (09:03):
So how much, if you decide, cause normally what you do is you buy the house, you fix it up, you sell the house. So I'm assuming that's the first strategy we're going to talk about to fix it up. You said it's 99,000. It's probably going to be what, 40 or 50,000 to fix it up and get it presentable?
Jay Conner (09:19):
Well, that's a wonderful thing about this home. So this is what we call a pretty house versus an ugly house. A pretty house definition is, it's habitable, needs some TLC, but nothing major, you know, I mean, it doesn't need like it doesn't need a new roof. However, it does need some minor roof repair on the front right corner, but the roof is fine. Doesn't need a new HVAC. Right? But it needs lipstick. So, if I rehab this house all the way and make it drop dead gorgeous, ready for Southern Living Magazine pictures and all the that and for, you know, for the realtor to hire the professional videographer and come in and do a 3d,
Scott Paton (10:08):
The walk.
Jay Conner (10:10):
And all that. So it take $15,000 estimated rehab to make it just absolutely gorgeous. If I want to put it in the Multiple Listing Service and get top dollar today.
Scott Paton (10:26):
So, your bottom line cost or the money you're going to be putting out over time and right away is around $114,000.
Jay Conner (10:36):
If I choose to rehab it.
Scott Paton (10:38):
Right. So if you choose to rehab it, what would you sell it for?
Jay Conner (10:44):
Yeah. So the after repaired value is $180,000 today. And that's what my realtor just told me last week, as we were touring the house right before we went under contract. So the after repaired value, of course, the definition of after repaired value is everything. It looks like a brand new home. Smells like a brand new home, all that. So after repaired value 180,000, if I rehab it at 15,000 purchase of 99, so the anticipated profit, putting it in the Multiple Listing Service listing over the realtor is $66,000 profit. Yeah. That's the flip profit.
Scott Paton (11:23):
Right.
Jay Conner (11:24):
66,000. And you know what? My average profit per , I mean, this house has got 1,450 square feet, three bed, two bath,
Scott Paton (11:33):
Beautiful.
Jay Conner (11:36):
You know, it's just your average, you know, size house, by the way, Scott, I didn't even tell you or tell everybody how did in the world did we find this house? Well, we found this one with a Google ad. So what's so beautiful about Google ads versus Facebook ads. And I do both. I do Facebook ads. I do Google ads. A Facebook ad, it comes up in your newsfeed and you weren't looking for it, right? It just, there you are on the newsfeed, a Google ad. This is a writer downer, folks. This is a writer downer right here. When you get a response from a Google ad, then people were looking for you.
Scott Paton (12:17):
Yes.
Jay Conner (12:17):
They went to Google and they typed in, sell my house fast or something like that. And guess what?
Scott Paton (12:25):
There you go.
Jay Conner (12:26):
There you're on your Google ads. Like you were looking for me. Here I am. I'm going to fix your problem. So a Google ad prospect has got typically more, much more motivation than a Facebook ad respondent.
Scott Paton (12:44):
So you had talked about two exit strategies. You already talked about one, where you basically buy the house, fix it up, put it, give it to your realtor, Chris. And he goes, puts it on the MLS and he does a great job of selling it. But there's a second exit strategy that got you kind of excited. What was that?
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