Real Estate Investing Basics

3 Different Ways to Close a Subject-To Deal

193 Articles Written
subject-to investing opportunities

The beauty of subject-to's is that there are many ways to make money from this type of deal. Best of all, if you do things right you aren't putting a penny down of your own money – you're simply taking over somebody's mortgage.

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How to Make Money with Subject-To Deals

Wholesaling a Subject-to
First, you can wholesale the property subject-to. In other words, instead of closing the deal yourself and taking over the loan, you can wholesale the deal to another investor who will take over the loan. One of the best ways to wholesale a subject-to deal is to retail buyers. This is because they don't need the numbers that investors do and they're just happy to be able to own a home without putting a lot of money down. When wholesaling a sub-2 in today's economy you can expect to make $5,000-$10,000 per deal.

Lease Optioning a Subject-To
The second way to make money is by buying the house subject-to and selling it on a lease option to a tenant/buyer. You might take over a loan for $200,000 and give your tenant the option to buy it at $240,000. This means you’ll make a nice $40,000 spread when the house sells. Also, in addition to the big payday, you should try to get a monthly cash flow of $200 a month and you’ll get about $5,000 upfront in option money from your tenants.

Getting a house subject-to and selling it on a lease option is one of my favorite ways to do deals. You just have to make sure to screen the tenants very thoroughly so you know they'll be able to qualify to buy the house down the line. If you don't do this, you're tenants might never exercise their option and you'll never get the big $40,000 payday.

Holding the Subject-To Deal as a Rental Property
The third way to make money is by holding onto the property as a long term rental. For example, when you take over a property subject-to, you might tell the owner that you'll have the loan out of his name within 10 years. So, for 10 years you get cash flow, you (hopefully) have an in increase the amount of equity and the entire time the loan is in somebody else's name. When the 10 years is up you can refinance or you can sell the house.

My Suggested Path
If I were you, I would plan on holding several properties for the long term and if you have enough cash from other deals, I would ideally pay them off so you can own them free and clear. If you don’t have enough cash then just refinance them and continue to live off cash flow.

As you can see, with every subject-to deal you come across you need to have an exit plan. Will you do a “cash now” strategy and wholesale the property? Will you take the middle approach and do a lease option and make around $40,000 when all is done? Or, will you plan for the long term and hopefully create a portfolio of houses that you never, ever sell?

It’s all up to you, plan wisely.

    Larry Harman
    Replied about 9 years ago
    Great information, Jason!
    Replied about 9 years ago
    Great information on Subject-Tos. It’s not something I would usually do because over here, across the Pacific, most mortgages have a due-on-sale clause. Wouldn’t a subject-to trigger such a clause?
    Carl Randal Real Estate Agent from Huntsville, Alabama
    Replied over 5 years ago
    Hi Jason, where do you close your “Subject To” deals?
    Caressa T. from Houston, Texas
    Replied over 5 years ago
    I read in another blog post from Jason that he strongly suggest to close at a title company and not at the kitchen table! 🙂 I’ve read 90% of his blogs and he hasn’t been active on BP for years.