September 23, 2020

How to Uncover the Best-Kept Secret Behind Buying a Subject-to Property

Real estate investors can choose from various strategies to expand their business. One of these investing techniques is buying a subject-to property from motivated sellers. If you are the type of person who is interested in exploring creative ways to buy a property, a better understanding of what “subject-to real estate investing” may be suitable for you.

What is a subject-to property

A subject-to property means buying a property subject to an existing mortgage or financing. In this technique, the buyer takes over the payment as the seller is not paying-off the attached mortgage to the obligation.

For example, the seller fails to make good of the mortgage due to some personal and financial challenges, then the investor will come in, conduct a property valuation, assess the needed fixes and repairs, and make an offer. After that, the seller and the investor will negotiate with each other and close a deal. The subject house will be deeded over to the investor but the mortgage remains to the seller.

This  arrangement is beneficial to both of the contracting parties. On part of the investor, the property may be acquired with a good negotiating price because an encumbrance is attached to the house. On part of the seller, offering a subject-to property for sale may save the house from foreclosure.

What the guru tells you

Most real estate mentors explain the subject-to transaction in a very positive light. This investing strategy will allow you to help the seller who is usually having financial difficulties by keeping their credit intact. You are going also to assume a lot of equity.

However, you must also understand the roadblocks and the rough sides of buying a subject-to property. An assessment of both the positive and negative sides will allow you to prepare an action plan in the best and worst case scenario possible.

A case to think about

Once you successfully entered into a subject-to property transaction, you now got your hands on a property with a lot of equity and you have the deed. However, you are not on the mortgage. You keep making payments and as the time passes by, the loan balance is reduced and interest rates keep going down. You decide to refinance for a lower rate and you write to the lender telling them your intention to refinance. However, the problem is that your Freddie Mac or Fannie Mae lender tells you it is not possible because you are not on loan and you have NO familial relationship to the borrower on the loan. You put up some costs with arrears and closing cost.

The secret to get through this roadblock

In case you experience the roadblock as illustrated, here is what you should do:

Go back to the seller and make an offer like it was a brand new sale

Offering the property back to the seller as if it was a brand new sale will allow you to have a higher chance of getting a better return because you have to take into consideration the closing costs as well as the original loan that was there to begin with.

Aim for an appraisal

Offering the property to the seller will be an opportunity for you to get an appraisal and negotiate with the value of the property at that given point in time.

If there is a big gap between the balance and your offer, recapture the equity

In recapturing the equity, you have to do a complete new purchase and a new refinance. However, this time, the refinancing will be in your name.

Buying a subject-to property is a creative way of dealing with real estate transactions. You must understand the underlying factors about this strategy and keep on learning about it until you master this approach. If you want to be  updated with the latest trends and events about real estate, feel free to join our community portal. You may also learn new investing strategies and be part of our training and webinars!


Maurice Federbusch is a real estate investor who established Value Funding Inc. in 2010. He finished his degree at the University of St.Thomas  Houston, Texas with a degree of Bachelor’s in Business Administration. He received his Loan Officer’s License in 2005. His experiences include working in Wells Fargo and Bank of America and providing financing using a NO DOC Loan Strategy in Residential and Commercial Real Estate.

The blog articles are intended for educational and informational purposes only. Nothing in the content is intended as legal or financial advice.