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Subject To Deals – The Perfect Solution to Today’s Financing Difficulties

I’m going to buy over 100 homes this year and so should you!

Investors today are having a tough enough time with their current investments. Refinances are tough, if not impossible, to do in your investment portfolio at the present moment. With the sliding market we are seeing great prices on homes everywhere but how do you get yourself into the transaction if you’re not able to get a loan on the home?

The “Subject To” deal may very well be the solution to your problem.

The definition of a subject to deal is when you purchase a home from a seller “subject to” them keeping their current financing (loan) on the property for an agreed upon amount of time.

So what does that mean and how can you use this strategy to buy 100 homes in this market?

To give you an idea of how these deals work and why they are win-win powerful deals, let me describe a recent transaction we participated in.

We had a seller who moved to San Antonio about five years ago, then decided it was his wish to move back home to Alaska. (As an investor I never question the cause of motivation.) This particular seller wanted to go to Alaska and now wasn’t soon enough! He didn’t have the time or patience to make the minor repairs the home needed or to let it sit on the market. He wanted a quick sale and just wanted out of the home.

To help him out we agreed to take the home over and closed the deal a week later. We put the home into a land trust and put a renter in the home. Within a month we had purchased a home with equity and cashflow. The seller is now in Alaska and is as happy as can be!

Most of the time you won’t be doing subject to deals with folks who just want to move to Alaska. It is true that subject to’s are normally used to help folks who are JUST entering into pre-foreclosure but still these type of deals work. As a matter of fact, they work like a charm.

Subject to Detractors:

1) A subject to deal is risky because you don’t own the home.

This is an inaccurate statement. When we do subject to deals we ALWAYS have the home deeded to a land trust, which we own.

2) A lender can call the note due at anytime.

While this is correct, I have never seen a lender call a note due on any investor who is paying the note in a timely manner. In fact, I have called lenders to tell them I now have a fiduciary interest in the home and that I will be making payments on the home (Can you spell it out any clearer?) The lenders just say okay and send me the payment information on the property. The bottom line is that lenders want to work with people who make payments on the homes. It does not make sense for them to pay the fees to call a note due when the note is being paid.

I will give this last word of caution to my investor friends. Subject to’s are a great way to buy homes at a discount and with cashflow. But we must always remember we are giving the seller of the home our word that we will make the payments on the home no matter what. The only time subject to deals go wrong is when investors don’t keep their promises and fail to make the payment. Although I would say in this case, it is not the investment strategy that failed but the investor. The bottom line is if you can’t handle the worst-case scenario (you paying the mortgage), then you shouldn’t do the deal. But that is the case with any kind of deal. I take my commitments seriously to my sellers and I advise all investors to do the same.

With that being said, subject to deals are a powerful and helpful way to purchase real estate. In today’s current market this is, above all, the most powerful strategy in buying tons of undervalued homes. It’s why we have made a goal of purchasing over 100 of these homes this year! You too should cash in on these great deals and remember at the same time you’re making money; you are helping lots of people out of bad situations. And that, my friends, is the best way to make money.