Subject to Real Estate Allows You to Buy Property Without Credit, Without Cash
Offers tied to real estate are one of the best ways to purchase real estate without worrying about financing and credit problems. Although not the most common form of real estate transactions, subject to is one of my favorite real estate transactions.
This is how the subject to offers works:
Subject to offers, allows you to purchase property while leaving the sellers existing mortgage in place. As an investor, you purchase the property subject to the existing loan or loans. The owner gives you the property and you agree to make the mortgage payments. The owners name is still on the loan and they are responsible for the payments.
As an investor, you get all the profits and very little risk. Where else can you buy your dream home and many others without worrying about your credit, using virtually no cash, and closing in a matter of days?
Still, there are some advantages and disadvantages to this method:
Advantages
Speed. Subject to offers that close quickly! Traditionally buying a home takes 15-60 days to close on a mortgage. With a transaction subject, you are only limited by the amount of time it takes you to find a motivated seller.
You don’t have to give money up front. This is one of the highest values subject to offers. In some cases, sellers will pay YOU to buy your home at closing.
Credit doesn’t matter. Subject to allows you to get the property you want regardless of credit. If you have the income, your credit will not prevent you from purchasing investment property. If the previous owner had a good interest rate, his rate would normally be lower than the rate he would get as a new owner. Your loan is based on his home as the primary residence.
Take charge of existing payments. You can find great deals from motivated sellers who have secured homes with low interest rates and low payments. Once you have the house under contract until closing, you can have the tenants take over the current mortgage, along with a little more income for a positive cash flow.
To assign or not to assign. You can buy the home and become an owner or wholesale (opt the property to an investor) for quick cash. You keep the cash with no strings attached or ownership of the property.
There are also disadvantages to holding onto real estate.
Disadvantages
Integrity, Honesty and Ethics. The seller must trust that you will pay off your mortgage and buy your home.
Avoid ARMS or negative amortization loans. This is bad news because you will always owe more for your house than it is worth. You didn’t go into the real estate investing business to be upside down on your properties.
The bank could cash the note. Although rare, a transaction subject could force the bank to demand immediate payment of the loan. The bank has the legal right to do this because selling a home with a subject is often contrary to the terms of the mortgage.