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Hey everyone! This is Grant Kemp from CreativeCashFlow.com, and today we’re diving into one of my favorite real estate strategies: Subject-To deals. Partnering with Propelio, we’re presenting powerful tactics to make money in real estate. Let’s get started with understanding the Subject-To model and how it can work wonders for you.
Subject-To is short for buying a house subject to the existing mortgage. In simpler terms, you acquire the property and take over the seller’s mortgage payments, but the mortgage remains in their name. This method is not the same as a mortgage assumption, where you would actually have the seller’s name removed from the mortgage and yours added. With Subject-To, the mortgage stays untouched, you just continue making payments on behalf of the seller.
Subject-To deals come with a host of benefits:
In a typical bank-financed deal, the seller has an existing lien with their bank. The buyer secures a loan from their bank, receives a warranty deed transferring ownership, and then the buyer takes on the new mortgage. The mortgage documents, namely the note and deed of trust, represent the debt obligation.
Under a Subject-To scenario, the seller keeps their original mortgage. You, the buyer, get a warranty deed, gaining ownership immediately. You provide the seller with a deed of trust for security, ensuring they can foreclose if you default on payments. You essentially take over the seller’s mortgage payments without disturbing the original debt terms.
One potential risk in Subject-To deals is the due-on-sale clause. This clause allows the lender to demand full repayment if the property is sold without their consent. However, in my experience managing over ten thousand deals, it’s rarely invoked. Still, it’s crucial to understand this clause thoroughly. I have a dedicated video explaining the due-on-sale clause and strategies to mitigate its risks, so be sure to check that out.
A typical Subject-To deal involves properties valued between $80,000 and $150,000. Sellers are usually 6-8 months behind on payments, with existing mortgages at 75-85% of the property value. The properties often need $12,000 to $15,000 in rehab.
To thrive in Subject-To deals, you need:
Sellers often worry about their ability to buy another home. Historically, underwriters are flexible if you can demonstrate that you’re making the mortgage payments. They usually do not count the Subject-To mortgage against the seller’s debt-to-income ratio.
Once you acquire a property using the Subject-To method, you have several options:
You can find Subject-To deals using the same marketing strategies as other real estate opportunities:
While it’s helpful to have basic rules of thumb, it’s equally important to know when to break them. Watch our rule of thumb video to learn more about evaluating properties.
Subject-To deals present a unique and powerful strategy for acquiring real estate with minimal upfront costs and significant flexibility. By taking over existing mortgage payments without the need to secure new financing, investors can quickly and efficiently expand their property portfolios.
However, success in this niche requires a deep understanding of the process, clear and honest communication with sellers, and the ability to navigate potential risks like the due-on-sale clause. Whether you aim to rent, flip, or finance your acquisitions, mastering Subject-To deals can unlock tremendous opportunities in the real estate market. For more insights and detailed strategies, explore our videos and resources on CreativeCashFlow.com.
Get started with Propelio and unlock all the tools you need to succeed in real estate. Sign up now for a 14-day FREE trial: Start Free Trial
Get started with Propelio and unlock all the tools you need to succeed in real estate. Sign up now for a 14-day FREE trial: Start Free Trial
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