Success In Subject-To Real Estate Investment Starts Here.

Real Estate Investment Basics
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There are numerous ways to purchase real estate as an investment. Most real estate investment methods require a decent amount of cash to use as a downpayment. Many lenders require 5-20% down when you purchase a piece of property. If the property is going to be a rental then you are looking at 10-25% down. That can be a substantial roadblock for someone without a lot of cash at their disposal. Fortunately there are investment methods that do not require much cash out of pocket. Some of the basic techniques are:

Subject to
Lease Option
Owner Carry
Loan Assumptions
Exchanges
AITD's or Wrap Arounds

Here at SubjectTo.com we cover both the pro's and con's of different real estate investment techniques. Many of the Guru's will only give you a one sided picture that makes their course look very appealing. Many of these courses are good and contain great information but there are still many potential pitfalls that come along with the various techniques that any investor should be aware of.

What Is "Subject To"?
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Buying real estate "Subject To" is a technique that can allow you to acquire a property with virtually no cash by leaving the seller's existing mortgage in place. This means that you do not have to get a loan to buy the property because you have purchased the property "subject to" the existing loan or loans. Practically, this means that the owner deeds the property to you and you both agree that you will make the payments on his mortgage. Since the owner's name is still on the loan he does remain liable for the payments however.

As an example, let's say Bob purchases a home and pays for it by getting a loan from a bank with only 5% down. A year later Bob loses his job and really needs to sell his house but the market has slowed and he can't find a buyer. If he uses an agent he may not have enough equity in his home to cover his agents commission and other sale costs.

If he allows his property to go to foreclosure then his credit will be ruined. You come along and offer to buy Bob's house by making the payments on his current loan. Bob deeds the house to you and you start making payments to Bob's bank. You own the home but Bob is technically still liable for the loan since you did not assume liability for it. Bob moves out and you either move in, rent, or try to sell the home.

Sounds like a great way to buy property doesn't it?

While there are some upsides to buying real estate "subject to" the existing loans there are also some very important downsides that many of the real estate "Guru's don't mention. Check out our column below on the Dark Side of "Subject To" investing for more information.

Use "Tax-free" or "Tax-deferred" Money in Your "Self-directed" IRA, Roth, or other Retirement Plan to Buy Investment Property. Find Out How

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The Dark Side of
"Subject To"
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Many real estate investment "Guru's" make it sound as if buying property "subject to" is easy and risk free. That is not the case. While there are many benefits to investing in real estate using subject to techniques there are also many pitfalls that may or may not be avoidable. The most important drawback of subject to purchases is the Due on Sale Clause (DOSC) that nearly every lender utilizes in their loan documents. This clause states that nearly any transfer of the property that occurs could allow the lender to call the loan all due and payable immediately. As an example, let's say I own a $300k home and I have a loan of $290k. This means I only have $10k in equity and that probably would not be enough to cover my sale expenses. I really need to sell my house and, when you offer to take over the payments on my loan, I jump at the chance. After we have signed an agreement that commits you to making timely payments on the mortgage I deed the property over to you.

Everyone is happy right?

Well, maybe not...
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