Selling as Sub-to

[Daniel Windingstad]

I want to sell a duplex and 1031 it into another property closer to my house (I moved and this is the strategy I want to use). 

I have an offer for someone to buy it via Sub-to. And having done research, I see it basically works like this: He gets title, and is responsible for paying my mortgage. In exchange he pays me a chunk of money to essentially cover the equity gap. but mortgage is still in my name. 

I see this as a way around Agent fees, and a fast way to sell. however i am aware of the risks, and would formulate a PA that would cover me for default on payments, refi, other liabilities, etc. This would get me a bigger cash payment, but with that risk of the debt. I also believe this would count against me DTI so it would make it impossible to finance another deal conventionally. Should i just play it safe and list it the normal way with an agent? There's a 20k-ish difference in what i would bring home if I had my Lawyer write up a PA that is Sub-to. Anyone here ever sold as sub-to and either had good or bad experience?

I also have the duplex finance under FHA, and it is assumable, but have heard it is tricky to sell assumable mortgages.

PS buyers motivation is the lower interest rate (5.75%) vs todays 7-8% or whatever it is and he wants to use funds for a 1031 exchange. Also, he is the owner of the property management company i hired for this property and is an established investor. 

[Bill B.]

You won’t be able to 1031 in to another property unless you have that much cash sitting on the sidelines. 

Imagine you are selling for $500k and owe $350k. To do a 1031 you must purchase at least a $500k property and put at least $150k in cash down. Anything less will be taxable. 

Ps. In this example Don’t forget to keep $350k more in cash on hand incase the lender calls the loan on property 1 due on sale. 

TLDR: if you’re willing to pass on doing a 1031. The buyer is offering at least 25% down and paying you 6-8% interest (not your interest rate as you are still legally responsible for paying that debt. You should be ok as long as you have enough cash to pay off the loan if it gets called.