To understand how to buy SubTo safely, you have to avoid overleveraging the property.

I could buy properties off the MLS for full price using SubTo, all day long. It doesn't take any special skill. But, it does expose you to a lot of risk & grief.

Over leveraging means owing more on a property than you can refinance out of.

So, you make a Subto offer on a MLS listing for $500,000, Full Price with a $450,000 mortgage.

They accept, and you borrower $65,000 from a private lender to complete the deal (to cover $30,000 R.E. agent fees, $5,000 closing costs, $10,000 rehab, cash to seller $20,000) it’s No Money Out of Pocket To You.

$500,000 MLS List

$450,000 Mortgage

$ 65,000 Private Lender

($65,000 2nd $30,000 R.E. agent fees, $5,000 closing costs, $10,000 rehab, cash to seller $20,000)

$515,000 total owed

Congratulations!, you’ve just bought a house using SubTo with none of your own money.

You now owe a mortgage of $450,000 + $65,000 for a total of $515,000 on a house valued at $500,000.

Now, it’s year later, and the lender finds out you bought the house and they send a Notice that they are invoking the Due on Sale clause. What happens?

You sell.

Your property is still worth roughly $500,000 and mortgage payments may have brought down the loan $5,000 So, you still owe:

$500,000 MLS Sale

Costs

$445,000 Mortgage (payments have reduced the mortgage a little)

$ 65,000 Private Lender

$510,000 total owed

$ 30,000 R.E. Agent fees to sell

$ 3,000 Closing costs

$ -43,000)

You have to bring $43,000 to closing or get sued

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