Flipping and flippers are getting a bad name lately because many economists and a large portion of the general public blame the process of flipping real estate for driving prices up so high before the housing market gave out. However, you should not believe all the bad press you hear. Flipping is a legitimate way to make money in real estate and it is a great way to generate money fast. However, since getting a loan is much harder now than it was when people first started flipping en masse about a decade ago, people who still like to flip houses now much deal with far more creative types of financing and sometimes lower amounts of money. In the end, though, these difficulties are often outweighed by the appeal of having your real estate investing money in your pocket again in short order rather than waiting on your wealth. If you decide to flip subject-to deals, you must be aware that there is a chance that you will end up paying on the property for several months or even years if you miscalculate. Make sure you have an emergency fund, and develop additional exit strategies to make sure that you do not end up with a house that you cannot manage if the flip falls through.
Subject-to property flipping is not that much different than regular flipping. Basically, you will get the property under contract from the homeowner using a subject-to contract that states that you will simply start making the mortgage payments and that in return the homeowner is immediately going to sign over the deed of the house to you. Once you have this contract in place, then you can sell the contract much as you would sell any other contract, and for any price that you can get.
However, you must factor in that a seller is going to sign power-of-attorney over to you so that you can make payments and decisions about the house and the mortgage. In order to effectively remove yourself from a deal once your part is done, your contract needs to deal with the fact that the new owner not only now has power-of-attorney, but that the new owner and the seller must deal directly with each other should they have issues with the property later on down the road. Fail to do this, and you are on the line for missed mortgage payments just like the original seller. Ultimately, you may not incur credit damage if the person you sell to stops making payments, but you can end up entangled in a nasty legal battle.
Remember, all real estate transactions must be reviewed by a real estate lawyer to insure that you are fully protected. Be sure that you have your own lawyer, since a seller’s lawyer’s job is to protect the seller, not you.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
