Subject To | Real Estate Investing For Beginners

Summary

The video script explains the concept of 'subject to' as a strategy for acquiring control over a property without the need to formally assume the loan or provide proof of funds. It is described as taking over someone else's existing debt while transferring the property's deed into the buyer's name, though the mortgage remains in the seller's name. The narrator uses an analogy comparing this process to buying groceries with a credit card to simplify the concept. Essentially, 'subject to' allows for property ownership transfer while the financial obligations remain tied to the original owner's name, enabling investments without traditional loan qualifications.

Takeaways

• 😊 Subject-to is a strategy for acquiring control of a property without taking over the existing mortgage
• 👍🏻 With subject-to, you take ownership by transferring the deed but the mortgage stays in the seller's name
• 🏠 It's like using someone else's credit card to buy groceries - you own the groceries but didn't take out the credit card
• 🤝 The buyer makes payments to the seller, who continues paying the mortgage with the bank
• 📜 The only thing that matters is that your name is on the deed, like having the receipt for the groceries
• 🚀 Subject-to works for all kinds of assets, not just houses - it's a way to take over something without formal debt assumption
• 🙌 You don't need to qualify for a loan, show financials, or formally assume the debt to buy subject-to
• 💡 It allows investors to access real estate deals without traditional financing contingencies
• 💰 The strategy lets investors get control of assets without large upfront cash outlays
• 📈 Once you control the asset, you can profit from appreciation, rentals, fixer-uppers etc

Q & A

What is a subject-to transaction?

A subject-to transaction is a strategy for acquiring control of a property without having to qualify for a new loan, assume the seller's existing loan, or show proof of funds. The buyer takes over the seller's existing mortgage debt and property ownership by having the deed transferred to their name, with the mortgage remaining in the seller's name.

How is a subject-to transaction similar to using a credit card?

With a credit card, you are borrowing someone else's money to buy something, but you still retain ownership of the purchase. Similarly, in a subject-to home purchase, you take over the seller's mortgage debt to acquire the home, but the deed/ownership is transferred to you.

Why would someone want to do a subject-to transaction?

It allows quicker and easier acquisition of investment properties since you don't have to qualify for financing. It's a way to build a rental portfolio without needing a down payment or proof of income/funds for each property.

What risks are involved with a subject-to transaction?

The main risk is that if the seller stops making payments on the underlying mortgage that you took over, it could lead to foreclosure and you losing the property. You also have less control without being on the actual loan.

What happens if the seller defaults on the mortgage I took over?

You would likely lose the property to foreclosure. This is the main risk, so it's critical to choose a financially stable seller and property when doing a subject-to purchase.

Do I need to make payments on the mortgage I take over?

Yes, you or the seller need to continue making the mortgage payments to avoid default and foreclosure. Often buyers will make payments to the seller each month.

Can I get a mortgage on a property I acquired via subject-to later on?

In some cases yes, through a cash-out refinance you may be able to qualify for your own financing and pay off the seller's mortgage that you originally took over.

What documents transfer in a subject-to transaction?

The grant deed transfers to convey property ownership, while the promissory note and deed of trust stay in the seller's name to keep the mortgage in their name.

Are there other creative financing strategies like subject-to?

Yes, other common strategies include lease-option contracts, seller financing, wraps, and land trusts. Subject-to tends to be one of the simplest and most straightforward methods.

What are the main benefits of a subject-to transaction?

Speed and ease of acquisition, no loan qualification needed, and the ability to build an investment portfolio without large down payments or cash reserves.