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Subject to and Insurance

There are a lot of things you need to be aware of if you are investing in real estate using creative financing strategies. Specifically subject to deals.

I recently wholesaled a sub to deal in Texas that everyone passed on. The owner tried to list it and know one would close on it. So as a person that likes to solve problems, I started to dig into the deal.

The seller was anxious to get out of the house as he was behind in payments and had gone through a divorce. He was just over it all. I made a tentative deal with him that would have given him $25,000 to walk away after inspection and COE. 

As we were doing the inspection, I noticed cracks that had been repaired at the foundation. So I asked the seller about it. He told me that there had been an issue with the foundation in the past and that he had gotten it repaired but didn't have the information anymore to the contractor that did the work. 

We hired and inspector who informed us that there was significant foundation issues that needs to be addressed as soon as possible. It would cost anywhere between $15,000 and $50,000 depending on what they find when they pull up the flooring. (it was on a slab) I informed the seller about this and he was just shocked. You could see the air seep out of his lungs. He just wanted to save his credit and now it was over...

So in my due diligence period, one of the things that we need to get is a copy of the insurance policy. As I'm reading it, I'm looking for all of the coverages and any additional coverages that would have been added on by the seller at the time he got the policy. Lo and behold the foundation was covered under the policy!!! 

I went back to the seller and told him that we can still do the deal but we would have to renegotiate our deal because the deductible is really high. The seller agreed and I went to work.

We got it fixed and I was able to get it sold in just days and made $10,000 as a wholesale fee.

The moral of the story is, do your due diligence. Learn what you can and can't do in any given situation. In our case it was just reading what others didn't even ask for, the insurance policy.

Let's talk about it...


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