Rent to Own a.k.a. Lease Purchase, Lease Options

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Jonathan Chu
  • Contractor
  • Los Angeles CA (los angeles, ca)
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Risk to the Seller on subject-to deals

Jonathan Chu
  • Contractor
  • Los Angeles CA (los angeles, ca)
Posted May 31 2022, 20:31

In a Subject-to deal why would the seller take the risk of keeping the mortgage under his name, when the buyer can default at a future time?  is it because they can get some cash from the buyer, and perhaps get some equity if they do have it? and be willing to be at peace for the immediate time, and prolong the risk to get foreclosed if the new buyer's don't make the payments?

Thank you in advance for your help.

Los Angeles County, California

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Joe S.
  • Investor
  • San Antonio
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Joe S.
  • Investor
  • San Antonio
Replied May 31 2022, 21:39
Quote from @Jonathan Chu:

In a Subject-to deal why would the seller take the risk of keeping the mortgage under his name, when the buyer can default at a future time?  is it because they can get some cash from the buyer, and perhaps get some equity if they do have it? and be willing to be at peace for the immediate time, and prolong the risk to get foreclosed if the new buyer's don't make the payments?

Thank you in advance for your help.


 Well in some situations this is the only method that would work for the investor. I get a little concerned because the gurus promote this method to newbie investors that are more wannabe investors than anything else. Once an investor takes over someone’s loan they need to make the payments on that loan regardless of whether their tenant pays or not. A lot of wannabe investors cannot do this so it would not be in the seller’s best interest to work with just anyone. For that matter a lot of people that call themselves investors really mean they want to be investors.

  I have bought properties by taking over payments for years now. I had one property that I could not get the tenant out for right out of year. The tenant was not paying during this whole time. I made the payments because it was the right thing to do.  I’ve taken over loans of sellers that had 800 credit score and you better believe I made those payments on time. I think if an investor has crummy credit they probably don’t care about the sellers credit either. What does the gurus tell people…it doesn’t matter what your credit’s like and you don’t even have to have money you can buy a house just by using the sub2 method. I could say more ,but you get my drift.

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Jeremy Marquez
  • Investor
  • Sacramento, CA
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Jeremy Marquez
  • Investor
  • Sacramento, CA
Replied May 31 2022, 22:46
Quote from @Jonathan Chu:

In a Subject-to deal why would the seller take the risk of keeping the mortgage under his name, when the buyer can default at a future time?  is it because they can get some cash from the buyer, and perhaps get some equity if they do have it? and be willing to be at peace for the immediate time, and prolong the risk to get foreclosed if the new buyer's don't make the payments?

Thank you in advance for your help.


From how I understand it, and id like to learn more from non guru like you guys 

This type of seller usually can't do anything with it, maybe there isn't any equity. 

I have 1 seller that bought last year, relocating from sf Bay area to Sacramento 

the Inspection was a bait n switch on it, the seller claims and when she got settled she noticed she had foundation issues and mold.

she now has no equity

Can't rent due to condition 

Needs to do something with it for cash to cover mortgage as she is renting something else in Roseville now.


So sub to is a good option. 

the courts are involved as.they are attempting a short sale, whcih isnt the best option for her scenario 

in this case i truly feel sub to is the best option for her

Thoughts on this 1 or need more info to give feedback?

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Michael Carbonare
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  • Fort Lauderdale, FL
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Michael Carbonare
  • Investor
  • Fort Lauderdale, FL
Replied Jun 1 2022, 04:08

Why would a seller be willing to give title to their house while remaining legally on record as the mortgagor?  A few words come to mind:  desperation, ignorance, insanity.

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Replied Jun 1 2022, 07:56
Quote from @Joe S.:
Quote from @Jonathan Chu:

In a Subject-to deal why would the seller take the risk of keeping the mortgage under his name, when the buyer can default at a future time?  is it because they can get some cash from the buyer, and perhaps get some equity if they do have it? and be willing to be at peace for the immediate time, and prolong the risk to get foreclosed if the new buyer's don't make the payments?

Thank you in advance for your help.


 Well in some situations this is the only method that would work for the investor. I get a little concerned because the gurus promote this method to newbie investors that are more wannabe investors than anything else. Once an investor takes over someone’s loan they need to make the payments on that loan regardless of whether their tenant pays or not. A lot of wannabe investors cannot do this so it would not be in the seller’s best interest to work with just anyone. For that matter a lot of people that call themselves investors really mean they want to be investors.

  I have bought properties by taking over payments for years now. I had one property that I could not get the tenant out for right out of year. The tenant was not paying during this whole time. I made the payments because it was the right thing to do.  I’ve taken over loans of sellers that had 800 credit score and you better believe I made those payments on time. I think if an investor has crummy credit they probably don’t care about the sellers credit either. What does the gurus tell people…it doesn’t matter what your credit’s like and you don’t even have to have money you can buy a house just by using the sub2 method. I could say more ,but you get my drift.

 Thank you for you're reply, i see how it could be a major downfall for the investor if the renter just stops paying their bill. Thank you 

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Replied Jun 1 2022, 08:02
Quote from @Jeremy Marquez:
Quote from @Jonathan Chu:

In a Subject-to deal why would the seller take the risk of keeping the mortgage under his name, when the buyer can default at a future time?  is it because they can get some cash from the buyer, and perhaps get some equity if they do have it? and be willing to be at peace for the immediate time, and prolong the risk to get foreclosed if the new buyer's don't make the payments?

Thank you in advance for your help.


From how I understand it, and id like to learn more from non guru like you guys 

This type of seller usually can't do anything with it, maybe there isn't any equity. 

I have 1 seller that bought last year, relocating from sf Bay area to Sacramento 

the Inspection was a bait n switch on it, the seller claims and when she got settled she noticed she had foundation issues and mold.

she now has no equity

Can't rent due to condition 

Needs to do something with it for cash to cover mortgage as she is renting something else in Roseville now.


So sub to is a good option. 

the courts are involved as.they are attempting a short sale, whcih isnt the best option for her scenario 

in this case i truly feel sub to is the best option for her

Thoughts on this 1 or need more info to give feedb

 Thank you for your reply, i see how the subject-to strategy  could be a great opportunity for a distressed owner. Thank you for your reply 

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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
Replied Jun 1 2022, 08:25

@Michael Carbonare  Please read the expert comments here.  IE those with >1k votes.

I primarialy buy subject to. I do sub to training at my local REIA and for BP have a PDF I'm happy to give out free that details this most complicated transaction complete with examples of all docs. I also like helping investors throgh the offer, contract, closing steps because its so difficult to do it right and many mistakes can happen. Connect/PM me.

No new info;  same as experts above, my sub to sellers had NO OTHER PATH to get "out from under a mortgage AND crumbling house they couldn't afford".

I present competently, give a solid business reason why I will make up the arears (which fixes their credit score) and keep payments (giving the seller a credit history of on time payments) because I'm a landlord; i rent the houses I buy sub to and to keep a house forever I need to keep the mortgage paid. I use a POA gotten at closing to work with the bank to setup auto-pay, its set and forget regardless of rent collected. I have a decent sized portfolio and cash flow to bridge over any (potential but never actually happened) non-payment of rent.

Sub to is best for lots of seller scenarios!   To be honest and clear;  when I work with the seller, offer the only solution I know of to help them, the seller has never asked or challenged me re me paying their mortgage.  The LEAP at the solution.  They are in pain, and need a way out.

Best to all. curt

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Luther Wilson III
  • Property Manager
  • Kansas City, MO
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Luther Wilson III
  • Property Manager
  • Kansas City, MO
Replied Jun 3 2022, 19:31

There are certain situations that come up in which a property owner would be more willing to sell their house subject to the existing financing.  Lately, since the market had been appreciating so much property owners have had more equity in their homes… That along with low interest rates and lots of credit availability combined with the fact that, in general, selling homes has been relatively easy over the last few years - the # of potential subject to situations is lower.

I just had a conversation with one of my mentors two days ago discussing this same thing.  He reminded me that there a handful of things he’d look for on a potential subject to deal:

1. The property is vacant 

2. The seller is delinquent on their payments

3.  The owner is already in their next place paying rent or a different mortgage

4.  The owner has tried to sell the property but for whatever reason wasn’t able to (Maybe a “Buyer’s Market”)

5. The seller has little to no equity in the home. ie “under water” or close to it.  (There was once a time when this was prevalent - 2008 - 2010 maybe?)  (A lot of sellers literally couldn’t sell their home for more than what was owed on their mortgage - there wasn’t even enough room to sell and pay the brokers commissions!)  

Who knows when or if the market will slow down or “correct” but when it does…  There could be more opportunities for distressed situations.  Then again, part of it may depend on how the banking regulations evolve.  

Supposedly there’s already lots of defaulted mortgages happening right now but the banks can’t or won’t foreclose because of the banking regs.

Hope this makes sense - I might be on a bit of a tangent lol  

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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
Replied Jun 4 2022, 09:40

@Luther Wilson III 

Thats a good list of prerequisites, on the extreme side though.  But certainly from a sellers perspective they have no choice since they have already stopped paying the mortgage, they've forgone their credit etc.

In my buying sub to experiences,  a few where occupied by the owners.  The house was falling apart and the owners where current on the mortgage but had zero ability to fix the $10k's of defered maint.  One house had no functioning way to bath/shower.  1 working toilet.  It cost me $50k to rehab to rental standards, after I fronted $3k before closing so they could afford the security deposit and move out into a rental.  So vacant is not a certain requirement, just a good one.    The more I think back, and of my peers's sub to deals;   most actually, >>50% where occupied by weak owners.  They need a way out.   Yes a few where vacant, trashed by poorly selected renters, some where current on the mortgage...   

The bottom line though is that a seller will agree to seling sub to for many reasons that in THEIR mind make sense. The buyer still has to make sure the numbers make sense from a deal perspective because (like seller financing) the numbers may not be a good deal. IE the mortgage is an ARM about to reset higher, ARV is too low, rehab too high, crapy area/neighborhood etc etc.

I still have all my sub to's kept as rentals.  no problems.  No past seller coming back with regrets, banks have not bothered me...   I have a training PDF I give away to help folks understand how to close a sub-to THEN the most important steps foor a sub to deal is AFTER the closing, changing the insurance and the trick involved,  telling the bank you are the new "manager" and setting up auto-pay from y9our business account.  etc etc.

Best to all, curt

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Eliott Elias
  • Realtor
  • Austin, TX
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Eliott Elias
  • Realtor
  • Austin, TX
Replied Jun 4 2022, 11:33

It only works if the loan remains under the sellers name. The bank activates what is called a due on sale clause that makes the entire loan due when the seller decides to sell. The risk for the seller is the buyer defaulting on the payments. In that case the seller forecloses and keeps all the payments that have already been made. Risk worth taking in my opinion 

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Luther Wilson III
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Luther Wilson III
  • Property Manager
  • Kansas City, MO
Replied Jun 4 2022, 13:19

Thanks, @Curt Smith - you bring up some excellent points.

Home ownership isn’t for everyone.  There’s a lot that goes into and most people may not realize it until they’re in there. I personally kinda agree with the likes of Grant Cardone, Patrick Bet-David, and money others - in that homeownership ain’t necessarily the “American Dream”.

That >>50% of buyers that was mentioned earlier is a really safe percentage range. Lol.  Part of it could be that the buyer(s) may not have the strength to keep up the house when times get tough.  Or part of it could be that we’ve all been sold a dream. For who to really profit? Who knows? Oh, that’s right - the banking system and other powers at be. 

Who was it that came up with the 3 D’s when referring to distressed property situations?  And was it 1. Death 2. Divorce 3. Debt ??  I’m probably missing some… With all of that floating around it’s almost like the odds are stacked against us, ain’t it?  That is, if we don’t educate ourselves, invest, and own businesses - I think.  What do y’all think?  

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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
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Curt Smith
  • Rental Property Investor
  • Clarkston, GA
Replied Jun 29 2022, 05:02

@Eliott Elias  Geeze you didn't read anything from us investors who primarily do subject to deals.   Its in the best interests of the seller, they have almost zero choices other then walking away.  Please read the good explanations above re why sub to works for the seller and its a good deal for investors who want to buy rentals.  

FYI to investors pondering sub to;  its NOT a low cash deal!!!  True I buy typically for <$3k to close.  But then I have to put in $30k to $50k rehab to make rent ready.  One I had to replace 1100% of the plumbing AND sewer pipe and BOTH bathrooms to the studs.  These houses are in rough shape.

How to find sub to sellers; use a tool like propstream.com; filter on <6 yrs owned, (low equity) but >2 yrs, and add to this list houses with >80% LTV. This will be a low % list, mostly happy owwners. But its the best you czn do. Marketing to NOD notice of default (pre-forclosure) must be after youve gotten good education on how to deal with closing on a deal in <4weeks total. Typically 1week, often closing in 2 days. Its very very hard doing pre-forclosure. Best scenario is they file bankruptsy and that gives you 3 mo. The owners though are shockingly un-motivated to sell. Better to drip on a stable list of owners.

Best to all, curt

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Phommala Songkhors
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Phommala Songkhors
  • Rental Property Investor
  • Cranston RI / Cape Cod
Replied Jun 29 2022, 16:10
Quote from @Curt Smith:

@Michael Carbonare  Please read the expert comments here.  IE those with >1k votes.

I primarialy buy subject to. I do sub to training at my local REIA and for BP have a PDF I'm happy to give out free that details this most complicated transaction complete with examples of all docs. I also like helping investors throgh the offer, contract, closing steps because its so difficult to do it right and many mistakes can happen. Connect/PM me.

No new info;  same as experts above, my sub to sellers had NO OTHER PATH to get "out from under a mortgage AND crumbling house they couldn't afford".

I present competently, give a solid business reason why I will make up the arears (which fixes their credit score) and keep payments (giving the seller a credit history of on time payments) because I'm a landlord; i rent the houses I buy sub to and to keep a house forever I need to keep the mortgage paid. I use a POA gotten at closing to work with the bank to setup auto-pay, its set and forget regardless of rent collected. I have a decent sized portfolio and cash flow to bridge over any (potential but never actually happened) non-payment of rent.

Sub to is best for lots of seller scenarios!   To be honest and clear;  when I work with the seller, offer the only solution I know of to help them, the seller has never asked or challenged me re me paying their mortgage.  The LEAP at the solution.  They are in pain, and need a way out.

Best to all. curt


 the best !!!!!