Finding subject to properties can be a lucrative path to building wealth in real estate, but it requires careful planning and due diligence. This guide will walk you through the process, answering key questions and providing valuable insights. Subject to purchases, where you take over existing mortgage payments without refinancing, can offer significant advantages, but understanding the risks is crucial.
What is a Subject To Property?
A "subject to" mortgage, also known as a subject to purchase, allows you to acquire a property while leaving the existing mortgage in the original owner's name. You essentially take over the existing mortgage payments, becoming responsible for them, but the seller remains legally responsible for the loan. This contrasts with a traditional purchase where you refinance and take over the loan in your own name.
How to Find Subject To Properties: Strategies & Resources
Finding suitable subject-to properties takes initiative and a proactive approach. Here are some effective strategies:
1. Networking:
- Wholesalers: Wholesalers often have access to motivated sellers looking for creative solutions. Build relationships with reputable wholesalers in your area.
- Real Estate Agents: While not all agents are familiar with subject-to transactions, some specialize in working with distressed properties and may be receptive to your approach. Be clear about your strategy.
- Attorneys: Real estate attorneys often encounter situations where sellers need alternative solutions.
- Private Lenders: Private lenders frequently encounter properties in pre-foreclosure or facing other financial difficulties; they can sometimes point you toward potential subject-to deals.
2. Online Resources:
- MLS (Multiple Listing Service): While not explicitly advertising subject-to deals, the MLS can identify properties with potential. Focus on properties with potential issues (high loan-to-value ratios, behind on payments, etc.) that might make a seller more open to a subject-to agreement.
- Foreclosure Listings: Websites and county records often list properties facing foreclosure. These owners are often highly motivated to avoid foreclosure and might consider a subject-to sale.
- Online Marketplaces: Certain online real estate marketplaces may have sellers willing to explore creative financing options, though this requires diligent screening.
3. Direct Mail Marketing:
- Targeted Marketing: Identify neighborhoods with potential distressed properties and send direct mail pieces explaining your subject-to strategy to homeowners.
- Personalized Approach: Avoid generic mailers; customize each letter to address specific property concerns and highlight the benefits of a subject-to sale.
4. Driving for Dollars:
This old-school method involves driving around neighborhoods and physically inspecting properties for signs of distress (poor maintenance, overgrown lawns, foreclosure notices).
What are the Risks Involved in Subject to Purchases?
Subject to contracts come with inherent risks:
- Assumption of Liability: While the seller technically remains liable for the loan, you could face consequences if you fail to make payments.
- Title Issues: Thorough title searches are essential to uncover any liens or encumbrances that could affect your position.
- Due Diligence: A complete property inspection is critical to identify potential problems you may inherit.
- Legal Counsel: Seeking legal counsel to review and finalize the agreement is absolutely necessary to protect your interests.
What are the Advantages of Subject to Transactions?
Despite the risks, subject to purchases offer some powerful advantages:
- Faster Closing: Subject-to transactions often close much faster than traditional purchases.
- Lower Initial Investment: You avoid the need for a large down payment or significant closing costs.
- Leverage: You can leverage the existing equity in the property to acquire more properties.
- Potential for Profit: Successful subject-to deals can lead to significant profit through appreciation, rental income, or eventual resale.
How Can I Avoid Scams When Looking for Subject to Properties?
- Verify Seller Identity: Always independently verify the seller's identity and their ownership of the property.
- Due Diligence is Key: Conduct extensive research on the property, the mortgage, and the seller.
- Seek Professional Advice: Consult with real estate attorneys and other professionals before entering into any agreement.
- Avoid "Too Good to Be True" Deals: Be wary of deals that seem unusually profitable or too easy to achieve.
What is the Process of a Subject to Property Transaction?
The exact process can vary, but generally includes:
- Property Identification and Analysis: Find potential properties that fit your criteria.
- Seller Negotiation: Negotiate the terms of the subject-to agreement with the seller.
- Contract Execution: Sign a legally binding subject-to contract with the seller.
- Due Diligence: Conduct thorough inspections, title searches and review all the relevant documents.
- Assumption of Payments: Begin making the mortgage payments as agreed upon.
- Regular Communication: Maintain clear and consistent communication with the seller and lender.
Finding subject-to properties requires a blend of strategic planning, diligent research, and a keen understanding of real estate principles. By carefully evaluating the risks and rewards, and by working with competent professionals, you can harness the power of subject-to financing to build your real estate portfolio. Remember, education and due diligence are key to success in this realm.
