Table of Contents
What is the Difference Between “Subject to” and “Subject 2?”
“Subject to” and “Subject 2” are the same thing. It refers to getting financing subject to the existing mortgage.
What is a Subject to?
Essentially, you get the property and start making payments for the previous owner.
Typically, a buyer has another bank that will help them pay for the home. In the case with a “subject to,” you are using the existing financing.
Benefits of “Subject to”
The benefit of a “Subject to” is that you don’t have to pay for a lot of the closing costs. You only need to set up payments and have your lawyer draft up your paperwork.
You can get a very good deal. If you catch someone that just doesn’t want to deal with the payments, you can get a lot of equity on the property.
It works well for dilapidated property. Dilapidated property are the homes that need a lot of work. You can rehab the home and sell it for a profit. If you want a quicker sale, you can offer it to a rehabber for a smaller payout.
You can also target newer homes. You can find a person that wants to get our of their home, but they don’t have enough equity in their home to sell with traditional methods.
Cons of “Subject to” – Why You Shouldn’t Do It
The banks don’t like this because they can’t charge people for the fees that come with buying property in this way. In order to discourage people from using this method, they have an acceleration clause.
The acceleration clause is something written in your mortgage. If you sell the property, the bank can ask for the whole loan in payment.
The homeowner’s name is on mortgage. The deed would be in the investor’s name. This means if you stop making the monthly payments the previous homeowner could have their credit score damaged.
Owner Finance deals are some of the best ways to do creative finance deals. I’ve found that the easiest real estate asset is actually rural vacant land. You can do a lot of the the things you can do with a Subject 2 without having to worry about the acceleration clause.
How to do a “Subject to”
It’s important to be able to find the deal. You can use Virtual Assistants (VAs) to help call the homeowner that might have some distressing need.
A lot of investors will send out mass mailers to find deals. It’s important to follow up and connect with homeowners because this market is competitive.
You will need a real estate lawyer that has done “subject to” deals. You will need to make sure they have experience doing creative deals.
Some real estate lawyers will put the contracts for free on their website.
You’ll need to set up insurance payments and your monthly payments. If the home owner had bad credit, they may not mind you not making the monthly payments. If it goes too long, it will lead to foreclosure.
Why you should do a “Subject to”
Real estate investors are using the “subject to” as a way to make a lot of money. They are able to get in without having to pay a lot of cash or a larger down payment.
Because the financing is already there, you don’t have to find bank. This means there is a lot of flexibility in how you are acquire property. You just need to find an owner that wants to get rid of their property and move on with their life.
Here is an article about different real estate investing strategies: 13 Real Estate Investing Strategies and the best-strategy when you are starting out. Look at different options if you are starting out your real estate investing career.
Frequent Asked Questions:
What is the difference between “subject to” and “subject 2?”
There is no difference. It means the same thing. It’s a type of creative financing.
Why should I consider “subject to” investing?
It’s a way to get inside of a house with very minimal amount of money. It’s possible to get inside a house for $0.
What is the biggest reason for not doing a “Subject to?”
The biggest reason is that a bank can use the acceleration or due on sale clause and ask for the loan to be due. It’s not common, but you need to be able to respond to it.
How should I get into Real Estate Investing as a beginner?
I recommend you look into House Hacking. It’s a way that you can buy a primary home and have tenants pay for the mortgage.
