Can someone please tell me how to do a SUBJECT TO deal????

8 Replies

Hi, I'm a newbie to the real estate investing world and I would like to know what a subject to deal is and how to go through it? And what is it what I'm looking for? This lady wants to sell me her house for 100,00 but wants me to take over her mortgage and she owes 96,000 . I was planning on doing a wholesale with this property, but another investor advised me to a subject to instead. I don't want to waist time and go any further if I don't know what I'm doing here. So please can someone give me advice on how to do this step by step so I can continue with this quickly. Thanks, Cynthia.  

@Cynthia Hernandez

 A subject to deal is when the seller deeds their property to you, but leaves the underlying mortgage in place in their name.  You are responsible for their payments.  If you stop making payments, you will ruin the seller's credit.  That is a big responsibility.  Most times you would want equity in a subject to deal. It looks like you would be paying the seller.

What is the home worth? Are you aware of the Due on Sale Clause?  Do you the ability to refinance if the loan gets called?  

Just some things to think about.  

PM me. We can discuss the deal.

Let me make sure you understand what a wholesale deal looks like

70% of after repair value or comps is a starting place

The subject all the repairs and have some wiggle room maybe 5%

That's a minimum for wholesale deal

Subject to or a wrap around mortgage is a perfect house in perfect condition with good financing in place, and I prefer to have at least 10 per cent equity

Why 10%? Will the selling agent in closing costs about 8%

And I want some wiggle room that I can walk with some money and not pay to get rid of the house

Your deal is really thin if it's truly worth 100 and owes 96, you getting a discount of 4%

Unless you can get a really good spread on the rent compared to PI TI, I would pass

@Cynthia Hernandez

I pulled up comps, and i got around 158,000.. so thats what the house is worth right? And also what is due on sale clause???

@Brian Gibbons 

@Cynthia Hernandez

If the house is worth $158K then getting it at $96K (or 100K) seems like a pretty good deal. Do you have any idea how much work it needs in order to get two the $156K price?  As Brian mentioned earlier, getting in at 70% could be a good deal...You would be in at 64%, even better!

A due on sale clause is generally written into a mortgage and basically says that if the property ownership is ever transferred to another owner then they can accelerate the loan, basically say it must be paid in full or they will foreclose. When you take a property "subject to", title is transferred to your name but the mortgage remains in the previous owners name. the term "subject to" essentially means that they are giving you title to the property subject to you paying the PITI. That being said, very rarely does a bank call the note due as long as payments are being made.

If you are going to wholesale it then there is no reason to do a subject to, just get it under contract at your lowest possible price and the make sure the contract is assignable ("and/or assigned"). Then get it on the BP market place and/or any other investors you know and I'm sure it would go quickly.    If you do "subject to" then you have ownership of the property and can then flip it yourself, rent it, lease option or any other possible exit strategies.  What is your over all goal?  What are the rents in the area for comparable homes?  

Thank you so much for your input. It helped a lot (:    @Tim Ehlers 

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