Should I sell Subject To?

4 Replies

I have a single-family property that hasn't appreciated much in the time that I have owned it, but through my value-add activities I have driven the rents up considerably. I split the property and now it is a 3/2 and a 1/1. Rents have gone from $800 to $1700 in a couple of years. Unfortunately the neighborhood isn't great (not bad, just very mixed) so it hasn't appreciated more than about $5000. So I can't do a cash-out refi to recoup equity.

I found an investor that would buy it at much more than retail value because the rents are so high. Typically in this neighborhood a 4/2 (which is what this property was before I did my value-add) rents for $800-900. Mine is basically doubling the income so the investor sees the value and is willing to pay for it, but they want to do a seller-financing deal. I have a mortgage on the property and don't have the funds to pay it off, so I would have to sell "subject to" in order to get the price that they have offered.

I know that "subject to" is typically used for distressed sellers. I am not distressed, I would be using this to get a great price for the property. Am I a fool for considering this? Anything I should be looking out for? Any chance I would end up with a mortgage to pay and no property to back it up?

Originally posted by @Scott McWilliams :

I have a single-family property that hasn't appreciated much in the time that I have owned it, but through my value-add activities I have driven the rents up considerably. I split the property and now it is a 3/2 and a 1/1. Rents have gone from $800 to $1700 in a couple of years. Unfortunately the neighborhood isn't great (not bad, just very mixed) so it hasn't appreciated more than about $5000. So I can't do a cash-out refi to recoup equity.

I found an investor that would buy it at much more than retail value because the rents are so high. Typically in this neighborhood a 4/2 (which is what this property was before I did my value-add) rents for $800-900. Mine is basically doubling the income so the investor sees the value and is willing to pay for it, but they want to do a seller-financing deal. I have a mortgage on the property and don't have the funds to pay it off, so I would have to sell "subject to" in order to get the price that they have offered. 

I know that "subject to" is typically used for distressed sellers. I am not distressed, I would be using this to get a great price for the property. Am I a fool for considering this? Anything I should be looking out for? Any chance I would end up with a mortgage to pay and no property to back it up?

 If you do A Sub To you can't foreclose if he stops making payments, that's a big problem. Also, you no longer own the property.

Do a Wrap instead. Find an attorney who can create a note & deed for the amount you are selling. The buyer pays you, you can foreclose if he stops paying, you continue making your payment to the bank as normal.

Hi. It depends on what you want to do next and how long you want to wait to invest again. It sounds like you want to move quickly. There are always options. Do you want to buy another property and what kind? What market are you in? What options do you have for financing- if you know? You can take a large downpayment from this investor and use that as part the next deal. You may know all of this but just in case I'll provide some detail. For example, if you buy a small MF and the rents cover the loan ratios, etc, you may just need a downpayment. Also, if you can, you should have him/her pay you more than what your monthly mortgage is and make sure you cover yourself legally in the contract so that if they default on payment you can take over the home quickly. I would consult an attorney to make sure the language protects you. You may have to find a FSBO property with little or no money down, or get a partner to finance the next deal. Some investors would understand your circumstances and would be willing to work with you depending on the project, business plan, long term/short term goals, etc. Otherwise, if you can sustain the mortgage and you're getting extra money from the rental income and you can't get a downpayment from this other investor, then try to find an investor/partner for the next deal who is willing to finance the downpayment or the entire deal. It's hard to grow quickly on your own whereas partnering up with the right person who has similar goals and values can help you grow your business, but it depends on your goals. I hope this helps.

@Scott McWilliams Absolutely do Not sell sub2...sell by way of a wrap around mtg, as you can foreclose if they don't pay. But realize, it still has one of the risk of a sub2...triggering the due on sale clause that your loan surely has. The best bet to avoid is in how you handle the insurance....a new name by itself on the insurance tips the bank off that you have transferred title....most lenders won't care, a few will.