Real Estate Investing : Subject-To Basics

Buying a property subject-to is a standard method that creative real estate investors use to build their portfolio. You may be asking, “What does it mean to buy a property subject-to?” It’s very simple. You take over payments on the homeowner’s mortgage until you sell the property one day, and the underlying mortgage is cashed out. So, you buy the property subject-to the existing mortgage. The deed is transfered and the mortgage stays in place. Instead of the mortgage company getting a check from the homeowner, they get a check from you.

Here are three advantages to buying property subject-to:

1. Less Cash in the Deal

The loan on the property is already in place. If you close through an attorney or title company, you will have to pay closing costs. Or, if you give the homeowner money for some of their equity, you will have to bring some cash to closing. But say they owe $100K on their house. That’s $100K that you don’t have to bring to closing.

2. You Don’t Have to Tie Up Your Credit

Again, the loan is already in place. You do not have to go to a bank and jump through their hoops and sign your life away.

3. The Loan Has Aged

We bought a property in Goose Creek a couple years ago and the loan was in year 17 of 30 when we took over payments. Now that’s what I’m talking about! Many years had passed since the loan originated. All those payments that consist mainly of interest had been paid. We still own the property and about half of every monthly payment is going towards principal. How about that?

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