Why would a seller do a Subject To?

15 Replies

From my understanding most investors make money from sub2's by doing things such as renting or seller financing to another buyer. My question is why wouldn't the seller just do this themselves if they couldn't find a traditional buyer? It seems as if the investor is really just a middle man for this situation. Maybe most people just don't think this way which is why it is a good strategy for us investors.

Cameron Berens, The Mike Parker Team at HUFF Realty | [email protected] | 859‑663‑8464 | http://www.cameronberens.com | KY Agent # 76373

I think you nailed it with your statement:  "Maybe most people just don't think this way which is why it is a good strategy for us investors."

Typical motivated sellers don't have the knowledge or the experience to even think about doing something like this and even if they did, they typically just want someone to take over their problem so they can walk away.

Real life experience on my sub2 deals and why seller's chose this route:

*divorce - no equity in home to sale outright

*parents passed away - note in daughter's name and she could not afford home or maintenance.  Owed more than property was worth in it's present condition.

*parents moved to nursing home - did not want to make necessary repairs to sell home and just wanted out from payments

*lost job - no equity, lives paycheck to paycheck so can not afford maintaining home

*job relocation - just recently purchased home and had no equity

*grand children - grandma wanted to move closer to her grand children

*etc.

Keep in mind I don't offer to take over payments unless I exhaust all other options.  The majority of my seller's had no equity, were behind on payments and houses needed substantial work.  I keep these all in my personal rental portfolio as I can not rely on someone else to do what I promised to do for these sellers.   I do not recommend offering this option unless you are prepared financially.

The other reason is that they don't want to deal with tenants. A lot of my investors are ex landlords. They are fed up with vacancies and damages. Their dreams of get rich quick in real estate are dead. So I take over their properties and put a tenant buyer in there and eliminate there problems once and for all.

Thanks for chiming in @Jim Pellerin . I have continued reading everything I can on Subject to deals since my original post and tired landlords seem to be a great target for Sub2's. This week I have finally taken the next step and started marketing for deals. So far I'm just emailing listings on Craigslist but I'm happy to finally feel confident enough to start taking some action.

Cameron Berens, The Mike Parker Team at HUFF Realty | [email protected] | 859‑663‑8464 | http://www.cameronberens.com | KY Agent # 76373

Good luck. @Cameron Berens 

I'd be happy to answer any questions.

Jim, before you get going in your rent to own type stuff, let's note that you're not down here in the US and you don't live under the Dodd Frank rules but the Queen's rules.

Doing a sub-2 and then seller financing to residents has several issues and is not a suitable strategy at all for new investors, compounding financing terms, title issues, insurance matters and assignments and a slough of other aspects that  are not for the beginner or the faint of heart.

I liked Michael's answer, because that's the way I buy (it). If a seller is motivated and you can actually take the deal and pay off any underlying mortgage that can be called or sell it and do the same, then the Sub-2 can be a useful strategy. Rent it, fine, turn around and do an installment contract to a resident buyer, better get your ducks in a row under federal requirements as they may apply.   Rehab, Sub=2 is a good way to go to flip it.

 :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

@Bill Gulley  I really feel bad for you guys :( It seems that America went from the land of opportunity to the United Soviet States in a matter of just a few years. I remember not so long ago being jealous of all the types of deals you could do, now it seems like it's cash or nothing.

@Doug Pretorius  

Yes, I suppose, it took a "soviet" type approach to hammer crooks, shysters and idiots to better protect the citizens being messed over. We can still do just about everything, just the manner of doing it has changed. I'm not liking the approach but agree with the intent to clean up messes and get scammers out of the industry. I'm sure the laws will be modified in time, getting the hiccups out of it, until then, it makes things more difficult. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Doug Pretorius:

@Bill Gulley  I really feel bad for you guys :( It seems that America went from the land of opportunity to the United Soviet States in a matter of just a few years. I remember not so long ago being jealous of all the types of deals you could do, now it seems like it's cash or nothing.

 Doug,

Though you can do sub-2's here, I have never found them that attractive ... always less so than in the U.S.A. principally due to our short mortgage terms and the gamble of the vendor/borrow getting past the next renewal.

How do you manage it?  Do you not bother registering your contract as a caveat on the title?

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

Originally posted by @Roy N.:
 Doug,

Though you can do sub-2's here, I have never found them that attractive ... always less so than in the U.S.A. principally due to our short mortgage terms and the gamble of the vendor/borrow getting past the next renewal.

How do you manage it?  Do you not bother registering your contract as a caveat on the title?

Roy, I don't take any bets on the borrower being able to renew. Either my occupant will qualify for a new mortgage or I will assume it before the renewal date comes around. For that reason I won't take over payments on a loan with less than 2 years, preferably 4 or 5 years.

If everybody is so concerned about the Dodd Frank Mortgage Rules, then why use subject 2 at all. I have done a few subject 2 here but I much prefer Sandwich Leases where I lease from an owner and sub-lease to my tenant buyer. I also put an agreement of Purchase and Sale with a deferred closing. Register it on title as a consideration. Tie the 2 contracts together and that's it. I mean there are pros and cons in this method too. And having so many deals I have had my fair share of situations with just about any method I have tried.

@Cameron Berens  

Planning to run a yellow letter campaign, but not ready to pull the trigger because not sure what I do with someone that calls.


What do you plan to do when your marketing responds?  Ie you get an email or call off your craigslist?