Creative real estate investing is always about the 3-Rights – the Right Tools in your toolbox – to fit the Right Opportunity – at the Right Time. Subject to Existing Financing is a tool that you need to keep sharp for when the right opportunity comes along. I call these “Subject to Deals” or “Get the Deed.” This is another way of helping sellers out of a pickle when you take control of the property for little or no money AND without having banks involved.
Subject to Deals… When No Mortgage Lenders are Needed!
Subject to Deals Help Sellers When No One Else Will
At the core, Subject to Deals are about taking control of a property AND keeping the existing mortgage in place. The 
title to the property will be transferred from the seller to the investor at the closing table but the bank will not be at the closing table. Only the seller and investor are involved (and maybe an attorney if one of you has that desire).
The takeaway is that only the seller and investor need to come to a meeting of the minds – no bank rules involved. The investor simply buys the property “Subject-to” Existing Financing. Many times, the best financing that can be obtained for a property is the financing that is already in place! Keep this in mind during the next several months as headlines announce every time interest rates go up another notch.
Our lifetimes will probably never again see the historically low-interest rates that are already on existing financing!
Subject To Deals involve distressed sellers. You might not think there are distressed sellers out there but mortgage foreclosure activity for the third quarter of 2021 was up 34% from the previous quarter and up 68% compared to the third quarter of 2020 (source: U.S. Foreclosure Market Report from ATTOM). I’m certainly not wishing any ill-will towards homeowners, but the reality is that the pandemic-related moratorium preventing foreclosures ended on July 31 of last year. By September 2021, foreclosure filings rose 24% month-over-month and 102% compared to September 2020.
There are distressed sellers out there who need immediate relief when the bank is breathing down their neck.
A “Subject-to” deal can immediately take over responsibility for mortgage payments when there is no better option.
Subject to Deals are About Full Control
If you follow this blog much, you know that I love sandwich lease options because they give you control of a property without owning the property. That is still true but there are times when a Subject to Deal is the best tool in your toolbox. A Subject to Deal can be best when the seller is in a seriously distressed situation.
There is a difference between a motivated seller and a distressed seller. Motivated sellers are ideal for sandwich lease options because they have very good reasons why they want to put a deal together quickly but these people are not usually in a dire financial situation. Sandwich lease option sellers usually want someone else to start making the mortgage payments but have not fallen behind on the payments.
Sellers needing a Subject to Deal are usually in a more dire financial situation and already behind in their payments. When the seller is behind on payments is the time when the Subject to Deal is typically better than a sandwich lease option. It can also be a better solution if the seller has severe financial problems other than with the mortgage. It also works when a divorce is involved which could lead to a messy closing for a sandwich lease option several months in the future.
It’s good knowing when to use a Sandwich Lease Option or when to use a Subject to Existing Financing to get the best results for both you and the seller.
Advantages of Subject to Deals for Investors
Now that we know how the seller will benefit, let’s look at why you want to use a Subject to Deal as an investor. First, you do gain full control when your name is on the title. That means you can do anything with the property that you want. You are no longer limited to a sandwich lease option that also needs to be agreeable to both the seller and the tenant-buyer. If you want to, you could rehab and flip the house instead. Of course, you can still do a lease option but you no longer have to share the rent and the profit with the seller – all the money flows directly to you. Another profitable possibility is renting for as long or as short of time as you want – and selling at the exact time and price that will bring the most value.
There are also financial advantages beyond having full control. Your initial return on investment can be for more money. In a sandwich lease option, you get into the deal for nothing down by using part of the tenant-buyer’s option fee to pay your option fee to the seller. If you do a lease option without it being a sandwich, you keep the entire option fee from the tenant-buyer – you are no longer the middleman.
You gain that full control without having to apply and qualify for a mortgage. That saves you both time and money. No application fees, no points, and no closing costs. Also no credit checks, no background checks, no proof of income required, and no digging up a ton of paperwork from years ago.
No financing needed — just take over the payments!
Why Sellers Accept Subject to Deals
Several years ago, before I knew him, an acquaintance was forced to sell a house because of a divorce. He and his wife had a successful medical equipment business that went out of business because of the divorce.
As a result, a relatively new and nicely built home had to be sold quickly. When it didn’t sell in the first month and the mortgage came due, he ordered the realtor to drop the price like a rock. At that point, the house did sell quickly but he took an almost $25,000 loss. What he didn’t know at the time is that he could have prevented that loss with a Subject to Deal.
Had he sold the house using a wraparound mortgage or one of the other seller financing methods, he likely would have made money on the deal instead of taking a bath.
Finding an owner who will sell “subject to” is not as hard as it seems. These are some of the same distressed owners that you find in other motivated seller deals. Most cannot keep making the payments and welcome the relief. Reasons vary: foreclosure, poor health, some own two houses, divorce, need to move, etc.
You use the same criteria and numbers to determine a good deal as with any other real estate investment. Just because it’s a “subject to” deal does not mean you want a bad deal. One thing you want to look at closely is whether the deed has any liens against it. This shouldn’t surprise you if the seller is having other financial problems. But liens don’t always mean a bad deal when it comes to creative real estate.
Be sure you fully understand the total numbers and how you will profit from any creative real estate deal.
Make Subject to Deals another tool in your investing master plan.
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Add Personalized Coaching.
- Cooperative Lease Options.
- Expand to Get the Deed “Subject To.”
- Round it all out by Working with Realtors.
Happy Investing!
Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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