Subject to Versus Owner Financing

Have you ever wondered how savy investors are able to purchase so many properties in a short period of time? Do you wonder what lender they are using to obtain these properties? I am here to reveal to you a little known secret. They are not using any lenders! What did you say? No lenders? Yes, I have found the key to success as a real estate investor, do not use a lender. Do the words “Subject To” mean anything to you? What about “Owner Financing”? These are profit centers. There are few differences between the two methods. The primary difference is whom you make the monthly payment to. Let me begin with “Subject To”. What this means is purchasing property subject to the existing mortgage. The concept is simple. You find a motivated seller. Now this does not mean the seller is financially distressed. It can mean one of many things such as relocation, divorce, slow market, marriage, loss of interest, inheritance, or desire to upsize or downsize. Whatever the motivation, they can all be of benefit to you the investor. Once you have identified their motivation, you offer to close on the sale of their property quickly. Or in some cases, you tell them you can close “on the date of your choice”. This puts you out in front of any other potential buyer. When you can accommodate the seller on their time line, you have just created an ally. They now want to work with you to make this sale happen. You create what is affectionately known as a “WIN/WIN. I will explain later how to make this a WIN/WIN/WIN! The next step is to sign a purchase and sale agreement that indicates that the seller is willing to sell “Subject To”. The contract must be signed by all parties and then submitted to your real estate closing attorney. You want them to run a title search and give their opinion. This will tell you if there is more than one mortgage. When you buy subject to, you are buying subject to all encumbrances. This includes, but is not limited to all mortgages, tax leans, and mechanics leans. This is why it is important to have the title searched. After this you are ok to close at will! You have just purchased your first home without having to obtain a new mortgage. You now begin making the monthly mortgage directly to the existing mortgage company. This is the key difference between owner financing and subject to. With owner financing you send the monthly payment to the seller, and hope they send the payment on to the lender. If they don’t, you wind up with the home being foreclosed on. This is not the most ideal situation. As you can guess, I am not an advocate of owner financing verses subject to. Can you imagine how this would increase your ability to purchase unlimited amounts of real estate? In this roller coaster ride of the mortgage, you need to educate yourself in these topics. They can boost your income and net worth expediently! -Scott A. Woodhams