Here's a Preposterously Risky Subject To Deal:
Buyer is a NINJA (No Income, No Assets, No Job, No Credit). Buyer has no prayer of buying real estate conventionally, and is a mess with their personal finances. Buyer believes in "Get Rich Quick" ideas that pretend one can build wealth without first sustainably solving the "I spend less than I make" problem.
Seller is in desperate, underwater on their house, facing the prospect of foreclosure, and wants to pretend that they are getting something in "getting out" of the situation. Accepts a "above market" offer for Subject-To financing.
This is an exceptionally bad idea because both the buyer and seller are ticking time bombs. What, the buyer, who is broke AF, is suddenly going to turn their life around? They are going to run their lives, and this business, where they have little/nothing on the line, professionally, making on time payments for 20-30 years? No way. Only if things go really well in the first few years, and a big old pile of equity accumulates will this work.
And the buyer is only half the situation. The other part of this is the seller. The seller, who was about to be foreclosed on with their low interest rate mortgage, is suddenly going to turn around their life? They are going to be responsible, never get into trouble, and avoid Bankruptcy for the next several decades?
Both of these people have a 30-50% chance of blowing this situation, at least. Multiply those probabilities by one another, and you have a huge undercurrent of risk ballooning and compounding with each passing month.
Note that I am not even mentioning the problems that are starting to be cited by investors once a "wholesaler" gets involved in the deal, or with "Due on Sale" clauses, etc.
Now, here's a lower-risk, likely value-add Subject To Deal:
Buyer is well capitalized, bringing hundreds of thousands of dollars down. They can buy property any way they want, including with cash, but the low interest rate mortgage on their reasonably lightly levered acquisition is an attractive component of the deal. Buyer knows Seller well and has every reason to trust their ability to behave responsibly over decades.
Seller is not desperate, but has a ~3% fixed rate loan on the property. Imagine their $500K home with $200K in mortgage left on it. Seller knows buyer or has every reason to trust their integrity.
Both parties have the ability, if push comes to shove, to pay off the debt or refinance, if the other party breaches that trust.
While this kind of deal does come with some risk, it is very manageable.
I might do a deal like the latter.
And of course, these are two extremes along a spectrum.
I fear the consequences of many doing deals like the former.
Which of the two situations is more true to your situation? Where are you and the buyer along this spectrum?
If the former, you may be trading $10K today for a long-term risk that could crush you at any time. If the latter, you might be... up $10K vs the alternative. Be honest with yourself, and if in doubt, don't do the Subject-To deal.
