Real Estate Investing Myths That Steal Profits From Your Pocket

One of the things that distresses us about our industry is the amount of wrong or incomplete information available to investors. Some myths block what otherwise would be a great deal, while others would have you believe that a bad deal is actually great. For example, we encourage purchasing homes "subject-to" the existing mortgage as an option to finance the purchase of an investment property. This means that title to the property is transferred to the purchaser, but the loan remains in the original borrower's name with payments made by the purchaser. Unfortunately, many myths exist around this method which could rob you of your profits. Let's take this opportunity to dispel 5 of the most common.

Myth #1: Buying A House "Subject-To" The Existing Mortgage Is Illegal.

Absolutely not true! Most mortgages have a "due-on-sale" clause which states that if the house is sold without paying off the mortgage, the lender has the "right" to call the entire loan due. The key here is that they have a "right" ? not an "obligation". In other words, it's their choice. We asked several attorneys in town who represent lenders to see if they had ever heard of a bank call a loan due because of a sale. In every instance they said not as long as the payments were made timely. Why? Because banks are in the money business ? not in the real estate business. If they call the loan due, and it goes into foreclosure, they have a poor performing loan on the books (for which they have to increase their reserves), they incur additional costs, and they inherit a property. Or, they can just accept the timely payments from the new owner. Which makes more sense?

Myth #2: Buying "Subject-To" Is Complicated And Requires A Ton Of Paperwork.

The truth is that all you have to do is write it into the Purchase and Sales Agreement (PSA). We write it in right next to the Purchase Price. Here's an example using our PSA:

Total Purchase Price to be paid by Buyer is $80,000.00, payable as follows: "subject-to" existing first mortgage with a balance of approximately $77,500, and monthly PITI payments of $695; remainder of Sellers equity to be paid in cash at closing.

That's it. You and the Seller have now agreed that you'll purchase the home subject-to their mortgage. As a precaution, we have the Seller sign a disclaimer that they know that the loan has a due-on-sale clause, and that we make no promise as to when the loan will be paid in full, or how long it will remain in their name. We also prepare a letter from the borrower informing the bank that all future correspondence should be forwarded to us, and we have the right to act for the Seller in every way regarding the loan so they'll disclose loan information to us in the future.

It really is that easy. After closing, you just start making the payments. We don't hide our identity. We send in our own checks, and the house insurance is in our name.

Myth #3: No Homeowner Will Ever Sell Me Their House And Leave The Loan In Their Name.

If you're dealing with a seller who has no problems with his house, this may be true. But when you deal with motivated sellers ? ones that either have financial, personal, or house issues ? this will not be an issue. Motivated sellers need a way out ? quickly! Often, they're already behind in their payments, and facing foreclosure. When you tell them that their worries are over, and you'll catch up their back payments, and make all the subsequent payments on time they'll jump at the opportunity. As a bonus, their credit will even improve.

The key to successful negotiating lies in your confidence. Realize that you're providing a viable alternative solution which allows the highest price to be paid, with the quickest closing, and immediate relief for the Seller's situation.

Myth #4: Kitchen Table Closings Are Perfect For These Transactions

Investors love to say that they "got the deed" at the kitchen table while they presented their offer. The concern is you have no validation of what you purchased. Without a title exam, there's no guarantee the correct owner even signed the deed, nor whether any other loans or liens exist on the property. You also have no title insurance to protect you from any unanticipated title problems. Finally, the actual payoff on the loan must be validated with the lender by requesting a statement of account. Do not use the principal balance payoff shown on the monthly statement because it does not include past due payments, other interest accrued, fees and penalties, and any prepayment penalties. We've seen actual payoffs tens of thousands of dollars greater than the principal payoff.

You could argue that what difference does it make if the loan isn't in your name and you gave the Seller no cash. The problem is that you may not discover any of these issues until much later in the transaction ? maybe not until you try to sell the property. By then, you will have invested time, energy, and money in the property only to see it all lost, when all of these problems could have been avoided by conducting a standard closing with your attorney or title company.

Myth #5: I Can Always Just Walk Away If I Can't Pay The Mortgage

This is technically true, but not a great strategy for the successful investor. Legally, you are not responsible for the payments. But you do have your credibility and reputation to consider ? which are critical to your long term success. You definitely don't want an angry seller defaming your reputation in the community, or submitting a complaint with the Better Business Bureau. Not to mention that you probably have cash invested in the house, which will all be lost. We recommend treating "subject-to" mortgages just like any other with your name attached ? make timely payments.

Lou

FREE! Real Estate Investing Secrets To Earning $100,000 Your 1st Year! -- 11 Overlooked Real Estate Statregies That Will Turn Your Investing Business upside Down And On The Fast Track TO Success...Guranteed! Plus A Bonus Track With A Secret So Successful It Can Double Your Investing Income Overnight!

http://www.InvestorSuccessTactics.c om

---

Real Estate Investing ? The First House Purchase

Real estate investing usually begins with the purchase of a... Read More

Buying Foreclosures - Knowing Why Helps You Buy

One big potential deal-killer in buying foreclosures is the homeowner.... Read More

Home Warranties: Are They Too Good To Be True?

What is a 'Home Warranty?'A home warranty is like an... Read More

Creative Real Estate Investing

With a job that paid $3.40 an hour, I saved... Read More

Investing In Commercial Property

Why commercial property?Compared to residential property investments, commercial property offers... Read More

Interior Design Secrets for Selling Houses

New concepts in Interior Design Psychology are helping home sellers... Read More

Commercial Real Estate: Assessing The Unique Features Of Commercial Real Estate Parcels

As commercial real estate development progresses into the 21st century,... Read More

Inspecting Your New Home - 17 Areas You Must Inspect Before Taking Possession

Congratulations! You've made your decision; you've chosen your new home... Read More

Is a Vacation Home Right for You?

Many of us dream about owning the vacation home in... Read More

Are You Really A Twenty First Century Investor

Today's residential real estate market for investors has become very... Read More

Sell Your Income Property For More

Selling income property isn't like selling a house. You can... Read More

Home Buying: Things To Keep In Mind

So you've decided you want to own a home and... Read More

Why Move to the Poconos?

Awaken to the sounds of softly rustling trees and tranquil... Read More

An Investors 1st and Most Important Lesson

Are you ready for the lesson that will put you... Read More

A Log Home Story

Solving problems while maximizing valuesThis story has a few good... Read More

Why I Love Country Living

As somone who has lived in both places, I can... Read More

Real Estate Investing - Makeovers vs. Flipping

Please don't call it "flipping."Some real estate investors who practice... Read More

Buying a Newly-Built Home? Ten Benefits of Using a Real Estate Professional

It might not seem necessary to involve a real estate... Read More

Finding Structural Problems During Escrow ? Small Rural Home Example

In rural home purchases, the transaction is often subject to... Read More

5 Factors of Selling a Home

There are five major factors to consider when selling a... Read More

How to Choose Your Real Estate Lender

Because you need quick action when applying for a real... Read More

New Home Construction - The American Dream or The American Nightmare?

Buying a new home is suppose to be the American... Read More

3 Mistakes to Absolutely Avoid in a 1031/TIC Exchange

We've all made bad decisions in the past. Don't you... Read More

What is a Foreclosure?

A foreclosure is an action taken against a property owner... Read More

Buying Property in Portugal

Portugal has long been a popular choice for people, particularly... Read More

Forclosure And The Durrett Rule

It's probably happened to you...Folks learn that you know something... Read More

Legal Information About the Real Estate Contract

The conclusion of final agreement between a seller and a... Read More

Buying Your First Investment Property

"Begin With The End In Mind"I first heard the phrase... Read More

How to Price Your Property?

A house properly priced is half sold. But there are... Read More

Landlords Dance The FICO Fandango

Fair Isaac Corporation is the creator of the FICO credit... Read More

How I Became a Real Estate Investor

Recently I closed on the sale of two homes. They... Read More

How to Make a Home for Sale Flyer Using Marketing Psychology

Want to sell your home right away, for the highest... Read More

The UK has Gone Property TV Show Crazy!

The UK has gone property TV crazy. There are now... Read More