How to handle inspections in a Subject To deal
Atlanta, GA · Member since 2021 · 27 posts · 29 votes
How to handle inspections in a Subject To deal
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Investor · Houston, TX · Member since 2020 · 111 posts · 64 votes
3yIt's true that in a Subject To deal, the investor is taking ownership of a property "subject to" the existing mortgage, without going through the traditional process of getting a new mortgage loan. This can be an advantage because it allows the investor to take over the property quickly and with less paperwork than a traditional mortgage. However, it's important to note that this approach does not necessarily mean that the investor should skip the inspection process.
In fact, it's generally recommended that investors conduct a thorough inspection of the property before taking ownership, even in a Subject To deal. This can help identify any potential issues or repairs that may need to be addressed, and can also give the investor a better understanding of the condition of the property and any necessary repairs or renovations.
One way to get an inspection while using a Subject To approach is to include an inspection contingency clause in the purchase agreement. This would allow the investor to back out of the deal if the inspection reveals any major issues with the property. Additionally, the investor can hire a professional home inspector to conduct the inspection and provide a detailed report on the condition of the property.
It's important to note that while an inspection can be an added expense, it can also save the investor money in the long run by identifying potential issues before they become major problems. Skipping the inspection process in a Subject To deal can be risky, and could lead to costly repairs or even legal issues down the line.
In summary, while Subject To deals can provide some advantages for investors, it's still important to conduct a thorough inspection of the property before taking ownership. By including an inspection contingency clause in the purchase agreement and hiring a professional home inspector, investors can ensure they have a clear understanding of the condition of the property and make informed decisions about their investment.
7 Replies
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
It is an advantage for the seller. You can still get an inspection if you’d like. Typically, when you buy a property subject to it is turnkey. You want to be as little out of pocket as possible. The nature of this financing does not require inspections or appraisals.
- Atlanta, GA · Member since 2021 · 27 posts · 29 votes3y
Thank you, Elliot!
How do you ensure that a property is turnkey? The way Pace spoke about the strategy, it seemed like he never even visits the property.
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes3y
@Parker Robertson “Subject to” is just a form of financing….everything else you’d do in a normal contract/sale remains the same.
- Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes3y
I've never inspected any property I've purchased including my primary residence. It comes down to risk tolerance, plan and experience. With a sub-to you could forego an inspection if it just sold 3 years ago and assume that at that time things were acceptable, so it's unlikely they deteriorated much. Or like one a buddy did recently, it needed work and was going to be a moderate rehab anyway. So the assumption is simply that anything an inspection would reveal would be getting fixed anyway. The sub-to was because that was the only way that the numbers worked without the seller bringing cash to the closing table.
Like Wayne said it's just a method of financing, if you're planning on turnkey rental with sub-to then you may want an inspection. If you're going to flip it then maybe not.
- Investor · Houston, TX · Member since 2020 · 111 posts · 64 votes3y
It's true that in a Subject To deal, the investor is taking ownership of a property "subject to" the existing mortgage, without going through the traditional process of getting a new mortgage loan. This can be an advantage because it allows the investor to take over the property quickly and with less paperwork than a traditional mortgage. However, it's important to note that this approach does not necessarily mean that the investor should skip the inspection process.
In fact, it's generally recommended that investors conduct a thorough inspection of the property before taking ownership, even in a Subject To deal. This can help identify any potential issues or repairs that may need to be addressed, and can also give the investor a better understanding of the condition of the property and any necessary repairs or renovations.
One way to get an inspection while using a Subject To approach is to include an inspection contingency clause in the purchase agreement. This would allow the investor to back out of the deal if the inspection reveals any major issues with the property. Additionally, the investor can hire a professional home inspector to conduct the inspection and provide a detailed report on the condition of the property.
It's important to note that while an inspection can be an added expense, it can also save the investor money in the long run by identifying potential issues before they become major problems. Skipping the inspection process in a Subject To deal can be risky, and could lead to costly repairs or even legal issues down the line.
In summary, while Subject To deals can provide some advantages for investors, it's still important to conduct a thorough inspection of the property before taking ownership. By including an inspection contingency clause in the purchase agreement and hiring a professional home inspector, investors can ensure they have a clear understanding of the condition of the property and make informed decisions about their investment.
- Rental Property Investor · Provo, UT · Member since 2021 · 46 posts · 50 votes3y
@Parker Robertson it's really just up to you. If you want to subject to a deal and have inspection just negotiate it with the seller;)
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesThe key here is that utilizing the subject to method of property purchase does not require an inspection and report by a state certified inspector as a new mortgage loan would.This does not mean (a) that the buyer shouldn’t inspect the property - if he’s qualified to he can inspect it himself, or bring in his contractor to inspect the property and (b) shouldn’t utilize a due diligence inspection period to terminate the contract if the repairs are going to be to costly.
Quote from @Parker Robertson:
I was listening to Pace Morby on the recent BP podcast and he was outlining the advantages of Subject To deals. One of the advantages he mentioned was avoiding inspections, but that goes against what I've always heard: "Don't buy anything without an inspection"
I am wondering how that is considered an advantage or ways to get an inspection while using Suject To approach.
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