Traditional foreign investor Purchase

‘Subject to’ purchase

You get an agency who will help you find the finance. Mostly you will pay an upfront non-refundable retainer fee (per property)

$2500 per property.This is an 'admin' cost for them to help you. Take note you will still have a huge consulting fee if your loan gets approved ($3500 per property).

$0

You are paying for the market value (or less) of the property. No admin feed, no hidden costs.

If the deal goes through you will pay a consulting fee per property

1.5% on the loan amount with a min $3500 per property. This is not included in the closing costs but is like a 'bonus' to the agency for finding you the loan

In traditional property, total closing costs and extras cost between 15-20% over the vlaue of the property. In the SUB2 models it wont be more than 5% because we are not applying for a new loan.

The interest rate on the loan

Between 7.5% - 12%. Bubt take note that they often say a lower rate, and then once you have invested in the paper work and time they begin to increase the rate stating new reasons why you don't meet the requirements for the lower rate.

Between 2.5% and 5%. The rate and terms are already detemermined by the seller's original loan. If the seller was a first time homebuyer, they could have got a really low rate and you profit... big!

Variable interest rate

The rate changes (usually up) after the first few years

Rate is fixed for the full term of the loan

The term of the loan

Usually between 5-10 years

Normally 30 years

The LTV (Loan to Value)

Between 50%-60%

From 40% to 90%. And this usualy depends on how far into the loan term the seller is when wanting to sell.

You will be charged between 2% - 3% of the loan value by the lender for the origination the loan

This fee is over and above the consulting fees and is charge by the 'bank' lender for orginating the loan. This is between 2%-3% of the loan amount.

$0

As the loan is already in place and you are not applying for a new one, there is no new origination cost.

You will pay about $1000 per appraisal per property for the loan

$0

You already have the loan in place so don’t need appraisals.

Other closing costs

Limit on number of properties you can buy

Lenders don't want to see that you have exposure on other properties. If you can’t prove sufficient global income they will see you as a risk and limit the number of loans they will give.

You can buy as many as you like (and are able to) as there is no loan in your name. And your name or company is never recorded against a loan so even if you do apply for traditional loans later your SUB2 deals would not be discovered.

Have to prove credit or global income (letters from accountants and verified by USA notary at Consulate-  $50 per signature)

Very time consuming and challenging if you are a clever investor with multiple structures. They also require that all of this be notarised by the US consulate and take a lot of time and money per signature required.

No proof of credit needed. No proof of income needed. You would just need your LLC details and tax numbers.

Set up LLC (once off). We suggest that all properties are held in a Limited Liablility Company (with two members). Takes one to two weeks to set up. You would do this whether buy cash, through traditional financing and through the SUB2 deals.

$1400

$1400

Set up Land Trust (per property)

The land trust is not really used in Traditional Foreign Financing.

$1400

This includes all the trust documents, the trasnfering of the property into the trust, as well as the costs of mobline notary to witness this. It also included the cost of the trustee for the first year.

Amount of documents and preparation needed

It took us 2 months to prepare our docs and then they changed all the details and we had to start again. This is known as bait and switch. They bait you with what looks like a good offer and then a few days before clsoing they chnage the terms and becuase you have already spent so much time and money the investor begrudgingly goes through with it.

No new loan so no new application process.

All you are signing is the agreement to be a co-beneficiary.

Simple and clean.

Time to close from agreement to purchase

From 2 months – 5 months.

Between 2 days to 10 days.

Non-recourse loans (so they can only use the property as collateral on the loan)

Most lenders don’t do non-recourse loans. If they do they will ask for a low LTV as you are at a higher risk. Also they will ask for large reserve funds.

It’s non-recourse because the loan is not in your name so you are not liable in any case.

Penalties for terminating loan early

Often there is an early termination penalty if you sell the property earlier than the term, or you pay extra principal into the loan.

No penalties at all.