Buying Real Estate with Private Money
The short explanation of subject to real estate investing is purchasing the home subject to an existing mortgage.
If the amount owed on the mortgage is $60,000, and you’re not going to pay them $60,000 then you do a subject to. “We’ll transfer the title to me and I’ll own the house, and I’ll start making your payment for you. You’ll still owe the money, but I’ll be making the payments.”
As the seller you’re still going to owe the money, but you’re not going to own the house. Is that a good deal? It’s not a good deal for the seller. However, if you’re buying it that way, it can be a good deal.
Why would a seller make such a deal? They’re desperate. You’re looking for motivated sellers
The only money at risk is the real estate investor’s money. If you buy a $150,000 house for $100,000, you have $50,000 in equity that’s at risk. If the house is foreclosed on, you will lose it and the $50,000.
Subject to Overview
Subject to real estate investing is not a new technique, but has been around for a long time.
The difference between “subject to real estate investing” and assuming a loan is that the old lender note remains in place. You, the investor, assume no liability for the underlying loan. If the property does go into foreclosure, it won’t affect your credit. The buyer is not obligated legally to pay the bank lone, although there is a moral obligation to pay.
Benefits of Subject to Real Estate Investing
1 No Credit Check
2 No loan applications
3 No waiting
4 No stress
5 Can save thousands on closing costs – One of the greatest benefits of subject to real estate investing is you don’t have to pay the huge closing costs. You save those points. It really saves you a fortune. You can either pay a little more for the house, or even give them a little money to move, because you’ve saved so much on your closing costs.
6 Little to no cash needed
7 Possible better interest rates
8 Possible cash at closing – Learn how to get cash as closing in Private Money
9 Effective on any type of property – empty land, apartments, hotels, commercial property
10 Safe and easy to set up
11 Large profits possible
12 Simple paper work
Why Sellers Agree to a Subject to Deal
5 Job Change
6 Behind on Payments
7 Old age
8 Immediate need for cash
10 Had to move
11 Don’t want any hassle
12 Live in another part of the country
13 Tired of dealing with renters
14 Many other reasons that you do not have to know. You don’t need to know the reason; you just need to be there.
Concerns with Subject to Real Estate Investing
There are some concerns with Subject to. In Private Money, Dennis J. Henson addresses concerns such as the “Due on Sale” clause, the importance of making the payments and bank communications. Dennis also talks about the escrow that builds up when you are making payments. You will learn why it is so important to stay in touch with the seller.
Problem: If you purchase a house subject to, and the person that sold it to you moves out of state and you can’t get in touch with them. Change phone number…you really have a problem. You have a serious problem. Because the mortgage company is not going to continue talking with you. And when you get ready to sell, the Title Company will say since they can’t get a payoff, they can’t close the deal.
What’s the answer? Refinancing would fix it. Sell it quickly!!! If the house burns down, you’ve lost everything.
Warning – if the people are going to file bankruptcy – Do NOT DO THE DEAL!
If you do that deal, the bankruptcy court can come back and make you a creditor. They can make you pay the equity! You do not want to mess with the federal bankruptcy court.
To learn more about Subject to Real Estate Investing and how to set up such a deal you need to get Dennis J. Henson’s “Private Money” teaching which includes the complete audio lecture, the class student handout and other materials.