Subject to deals (aka get the deed), offer several creative ways to control more properties without investing money of your own. It’s a great way to invest using other people’s money. The financial rewards are huge and the risk is extremely small. I’d use subject to deals almost every time if I could.
Subject to Deals (aka Get the Deed) are a Type of Owner Financing
Subject to deals are a form of owner financing. The current owner already has financing in place. Instead of the investor going through the painstaking (and costly) task of applying and being approved for a new loan, the investor simply takes over the sellers existing loan. The seller can make a profit on the deal but that becomes a second mortgage owed by the investor (without a mortgage application).
Like most creative financing deals, there are several ways these deals can be put in place. The one thing that needs to happen is the terms of the original loan contract need to be adhered to. Here are three common ways that subject to deals (aka Get the Deed) are put together:
- The investor obtains the original loan account number, mailing address, and due date to make the monthly payments. As long as the payments keep coming, the lender isn’t likely to call the “due on sale” clause (no matter whose name is on the check).
- Another common scenario is for the investor to send the original loan amount plus the amount for any second mortgage directly to the seller. This is not a preferred way to write a subject to contract. Especially if the seller has a history of credit/finance problems.
- The third common method is using a third party to distribute the money. The investor sends the money to a third party (essentially an escrow company) and that company sends one check to the original lender and another check to the seller for the second mortgage. This is the most secure but has the added cost of the third party.
From a Lease Options to Subject to Deals (aka Get the Deed)
The main reason more investors don’t use subject to deals (aka Get the Deed) is that it takes some trust on the part of the seller. After all, the seller is transferring ownership to you but their name (and responsibility) remains on the loan. This is why it’s extremely low risk to you but the seller still has some risk. The secret to making this happen is by building trust between you (the investor) and the seller.
A great way to build this trust is by starting with a lease option. A lease option doesn’t transfer ownership to you but does grant you control of the property. It also relieves the seller of the monthly mortgage burden.
A lease option does several things towards building trust to make the seller secure with transitioning to a Subject to Deal (aka Get the Deed). Besides no longer worrying about coming up with money for the mortgage payment, the seller is no longer responsible for maintenance and minor repairs. Additionally, you have a sales price agreed to via the lease option. All hassles of owning the property have become a distant memory for the seller. His or her only remaining concern is hoping you complete the purchase. After all, you still have the option to walk away.
There are several reasons the seller will agree to convert to a subject to deal. One of the most motivating is when you agree to complete the purchase well before the end of the option period. If the seller will pocket money from the sale, you may be able to finance this with installment payments (coming from your tenant/buyer). Or you may have to give them a balloon payment. There’s still room for negotiation when you convert the deal.
Why You Want Subject to Deals (aka Get the Deed)
There are good reasons that you want to have possession of the deed to the house. These sellers often have bad debt or other financial problems. These people are likely to be behind on the mortgage, have lost their job, acquired an illness, going through a divorce, etc. Although your risk is very low with a lease option, it becomes even lower when your name is on the deed and you make the payments.
In these situations, you want to get the deed with a Subject To Deal. Your main concern is that this type of seller will continue to have financial problems that could affect the title to “your” property if the deed is still in their name. For example, if this seller gets judgments from creditors, the creditor can attach to any real estate the seller owns.
This short article is not intended to provide all of the details for subject to deals. But rather to show when you should consider this investment technique.
By 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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