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Buying PreForeclosures “Subject To” Without Using Your Own Money

  There are many ways and methods in which you can fund a PreForeclosure property purchase: pay all cash (yours or a hard money lender’s), find a credit partner, use conventional financing (a mortgage), or my personal favorite, reinstate the loan and buy it “subject to.”

   Purchasing property “subject to” the existing financing is a great way to acquire any property, not just PreForeclosures.  By purchasing the property “subject to the existing financing” we are not getting a new loan, but rather having the seller transfer title to us (or into a land trust), and we take over the payments for them, and begin making payments directly to the existing lender.  This allows us to control a lot of real estate, without ever having to sign for a new loan against our personal credit.

   If you’re going to buy a PreForeclosure property using this technique, most deals will be fairly common: first of all, the homeowner is going to owe the lender back payments.  Let’s look at a case study of a home I recently purchased when contacted by a seller who wanted to stop foreclosure on his home.

   The seller owed a total of $208kon a home worth $260k.  He had PITI (Principal, Interest, Tax and Insurance) payments of $1500/month and was 4 payments behind.  After late fees, penalties, and attorney’s fees (the property had already gone into foreclosure status) the reinstate figure was $7,000.  The seller also had 9 months left on a prepayment penalty, which would have cost him 6 months of interest (approximately $7,000) if he had sold the property and had the loan paid off.

   The seller was willing to walk away from the home for $5,000 cash in his pocket.  So our cost to acquire this home was  $7,000 to reinstate the loan, $5,000 cash to seller, plus $2,000 in closing costs, which gave us a home with over $50,000 in equity for only $14,000 in out of pocket cash, for a total purchase price of $222k ($208k + $7k + $5k + $2k).

   Now I know what most of you are thinking: “Yes, great deal, but I don’t happen to have $14,000 in cash lying around to dump into a property.  I could just purchase the home with a zero down mortgage, or use hard money instead, and come up with $0 out of pocket.”

While on the surface this may seem true, let’s take a closer look: yes hard money might be zero down, but most hard money lenders want 5 points up front, plus they won’t lend on LTV of greater than 70%.  Since $260k * 70% = $182k, they wouldn’t have funded this deal.

   If you went with a conventional mortgage, you would have had to personally guarantee and sign for the loan, plus had to pay for all of the lender’s closing costs.  Also, that would have triggered the prepayment penalty to the buyer, so after paying $222k for the home, they would have had to come out pocket with $2,000 just to sell his home to you!  Chances are a homeowner facing foreclosure wouldn’t have $2,000 lying around, so you would have had to up your purchase price to $224k, and the buyer would walk away with zero cash!  Not much chance of getting that deal done if you don’t offer the buyer some money to move.

   So where did the $14,000 come from?  A business line of credit that I have, which incidentally had a teaser rate of 0% APR for the first 14 months!  This business line of credit doesn’t even report to my personal credit, so it never shows up on my credit report.  I borrow the money at 0% APR, and was able to produce certified funds within 24 hours to close the transaction.

   And where did I get my business line of credit?  My friend Tom Kish has a fantastic course on where to get hundreds of thousands of dollars of business lines of credit for your business.  I have personally used Tom’s system to acquire over $50,000 in business credit, all at a 0% APR, which never shows up on my personal credit report.

   Interested in getting access to these business lines of credit?  You can get information on all of it visiting and clicking on “Cash Flow Experts.”

   These business lines of credit have not only been used to purchase PreForeclosure properties, but also invest in marketing, systems for our business, search engine optimization, and other business expenses and projects that we might not have been able to launch if we didn’t have access to these lines of credit.