Creative Real Estate Investing: “They Pay You” Subject-To


There are four ways to make money from subject-to’s. But, before I tell you one of those ways, let me quickly tell you about my search for a new home. I met with the seller last week and negotiations went nowhere so I left. Basically, the guy was not motivated enough, so I’m going to start sending out letters and continue my quest. I’m not going to update you every week (because I don’t feel like it), but instead once I buy my place I’m going to write a long post and give you the exact details about how everything went down.

Learning “They Pay You” Subject-To

Alright, how many of you know what the “they pay you” subject-to is? Probably not enough. Here’s how it works: When you purchase a property subject-to, you know that the property must cash flow typically around $200 a month at minimum. However, in this market a lot of calls that I get are sellers who want me to take over their payments ASAP, but when I do my research the property doesn’t cash flow.

Let’s use a scenario to show you how I solve this problem. I get a call from a seller and he wants me to take over his payments of $1,500 a month. I run my numbers and market rent is $1,300. I also know that I want positive cash flow of $200 a month, which means I need my payment on this house to be $1,100 a month. So, I call the seller and using my scripts I let him know that I can assist him. I tell him that I can take over his payments, however since our company doesn’t take on negative cash flow he will have to write me a check for $400 a month. I do this for a five year term, and you’d be pleasantly surprised that a lot of sellers are willing to do this. Think about it this way: Instead of having to pay $1,100 per month, he now only pays $400.

And, for you negative people out there who say this doesn’t work (it works, I do it) let me show you how you minimize your risks. You have iron clad paperwork which states that if the sellers do not make the payments to you, that you will stop making their mortgage payment and the property will be foreclosed on and their credit ruined. Only once, have I had a seller “test” me on this. He stopped making the payments, so I stopped making mine and right before the house was to go to foreclosure he brought his payments current (you only do this technique on straight rentals because of the risk, not on properties you sell via lease option).

About Author

Jason R. Hanson is the founder of National Real Estate Investor Month and the author of “How to Build a Real Estate Empire”. Jason specializes in purchasing properties “subject-to” and has purchased millions of dollars worth of property using none of his own cash or credit.


  1. Thanks for the info, but I’m confused on one point. Do you actually take title (prior to year 5)? If so, doesn’t this trigger the due-on-sale provision of the mortgage? If not, the script should be changed to make clear you’re actually *not* buying the property.

  2. Great summary of a new twist on “subject to” for this market.

    In answer to some of the comment questions:

    In “Subject to” investing, the deed is transferred, but the underlying mortgage and note stays in the sellers name. Since the deed transfers you are truly “buying” the property.

    Documents such as a “limited power of attorney” and “right to release information” are usually signed by the seller authorizing the new owner to act on their behalf with regard to anything having to do with the property.

    There is the a concern about “due on sale” clauses that accelerate payment of the mortgage on transfer of ownership. These clauses are standard in mortgage documents, however in practice lenders tend not to enforce this as they would rather receive payments on the property that force a foreclosure.

    Just in case a lender does ever call a mortgage due, a document acknowledging this possibility is usually signed by the seller during the sale and retained by the buyer.

    There is a lot of controversy surrounding purchasing “subject to” as unscrupulous characters can use it to skim equity from unsuspecting sellers. Leaving the seller on the hook for the mortgage. In practice a “Subject to” sale can often be the only answer to a sellers dilemma as closing costs are generally much lower than with a traditional sale.

    To the question of what the purchase price would be, it is typically the mortgage balance, although I have taken over a property “subject to” where the seller gave me cash to take it.

    James Miller

    James Miller’s last blog post: The Housing Market – run for cover or buy like mad?

  3. I must be missing something.

    If the property is a rental and the rate is $1300 / month and the mortgage is $1500 / month then the seller is running at a loss of $200 a month (assuming we are discussing a property that is currently rented).

    If the seller agrees to this deal they are now receiving $0 / month in rental income and paying $400. Now a loss of $400 / month. In addition they get the bonus of handing over any equity and all equity that is included in each months mortgage payment.

    Why would any seller agree to this? It is a larger negative cashflow per month than simply holding onto the property.

    • Par, I think this article deals with owner-occupant sellers who want to get rid of their home. If they wanted to rent it out themselves they could but many people don’t want to deal with tenants, especially if they’re moving away.

      Of course if they hired a property management company at a commission then they might end up at the same cash-negative as selling to the investor as outlined in the above article. However by selling subject-to they do get to pass on the headache of tenant and maintenance issues.

  4. Jason that techniques is so smart. I’ve been browsing all day trying to figure out how to make a marginal deal work for me. Can you email me the form you use to get them to agree to the payments? I would greatly appreciate it. Thanks again for the great tip.

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