The definition of “subject to” investing is a method of purchasing properties while leaving the sellerʼs loan in place. In essence, it allows you to not have to get new financing for the property – you are buying the property that is “subject to” the existing debt. Now, I am going to walk you through the benefits of becoming a “subject to” real estate investor and give you the opportunity of choosing this win-win investment strategy.
The beauty of “subject to” investing is that you are not assuming the mortgage. All you are taking on is making payments on behalf of the original seller. This scenario provides the buyer with no personal liability/little risk. There might be times or situations when seller of that homeʼs loan is called due. A typical question that ensues after such an occurrence is what would happen to the lender if they called that loan due? Usually, if a lender has taken back a property either by foreclosing or calling a note due, they are penalized by the government for having a non-performing loan. Here comes in the no personal liability to the buyer (you): upon sale of the property “subject to” existing mortgage by owner, the buyer will be making the payments on the mortgage or suffer a loss of property by foreclosure. The benefit to you the buyer is the foreclosure is not going to affect your credit record as you were not legally obligated to make the payments on that existing loan. The sellerʼs credit record will be adversely marred. You are not legally obliged to make the payments, but I am sure your overriding moral conscious is what will keep you in check.
WHEN SEARCHING FOR SUBJECT TO INVESTMENTS HERE ARE A FEW TIPS:
- Find a motivated seller.
- Pick a fixed rate loan on the property as adjustable rate mortgages tend to easily increase your monthly payments which means less cash flow for you.
- Choose a low fixed rate.
- You have the option to choose a seller who has a lot vs. little equity on the property – either way the deal will work successfully.
SOME OF THE REASONS WHY A SELLER WOULD DEED YOU HIS/HER HOME:
The buyer is the helping the seller get out of situations where they are in over their head such as time and debt relief. For instance, some possibilities of change in oneʼs life is that they are being transferred because of their job, getting divorced, buying another home or just plain old financially strapped. That means, you can buy right away. This will give the seller instant debt relief and free them of their dire situation. Another scenario is that the seller may not have good credit and is unable to purchase home through standard methods. Buyer is gaining financially while at the same time assisting people in need by providing them with instant relief.
HOW TO MAKE MONEY ON A SUBJECT TO PROPERTY:
The following strategies enable you to make money when buying a subject to: getting paid to buy from seller; ensuring there is a non-refundable consideration option from the tenant or buyer; spreading the lease and mortgage payment that you receive; earning a back end profit because you are acquiring the difference between what you paid for the home and what you sell it for; and lastly depreciation and interest deductions amount to tax benefits.
I hope I have given you a taste of few of the benefits. Overall, my belief is that the purchase of a “subject to” home is a speedy, low risk and highly rewarding investment opportunity. It requires little money to begin buying as well as instant ownership and not being legally bound/saddled with loans in your name which are in my opinion some of the great perks. In addition, one does not have to qualify for financing plus you have the luxury of saving on time and closing cost. Lastly, you are able to leverage someone elseʼs credit – it does not get any better than that. My counsel to you is to jump in and start experiencing the financial rewards and freedom today.