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What is Subject To Real Estate Investing?

Subject To Real Estate Investing picture of house and mortgage doc
Subject To Real Estate Investing is growing popularity.

While there are numerous ways to purchase a property today, creative and out-of-the-box financing allows investors to earn higher profits and out-bid their competitors. One of these methods is called “subject to” real estate investing.

Continue reading to find out everything you need to know about subject to real estate investing and how you can use it to your advantage in 2023 and beyond.

What is Subject to in Real Estate?

Subject to in real estate means that a person is purchasing a real estate property that’s subject to an existing mortgage. 

In this type of real estate deal, the seller of the property transfers the title to the purchaser, but the existing mortgage stays in the seller’s name. The purchaser agrees to pay off the rest of the existing mortgage on behalf of the seller. 

People often purchase properties using this method since it requires no credit and little cash. 

Types of Subject to Real Estate

In real estate, there are three types of subject to transactions. Cash to Loan Subject To, Seller Carryback Subject To and Wrap Around Subject To.

Cash to Loan Subject To

The cash to loan subject to is the most used form of a subject to. Here the buyer pays the seller the amount of the difference between the sales price and the mortgage balance in cash while also taking responsibility for future mortgage payments. 

For instance, if the buyer and seller agree that the property is worth $325,000 and the remaining mortgage is $275,000, then the buyer will only pay $50,000 in cash and agree to pay off the rest of the mortgage. 

Seller Carryback Subject to

The seller carryback subject to is the second most common type of subject to. This type is most commonly known as seller financing or owner financing and is similar to a second mortgage. 

A seller carryback happens when the lender doesn’t allow the buyer the total amount of funding needed to purchase the property. 

The investor then will get a mortgage for the property’s value and then make payments to the lender in the form of a normal mortgage, as well as the seller in the form of a seller carryback subject to. 

Here, the seller isn’t paid in full for their house; instead, they receive the difference in payments through slow installments directly from the investor. The seller can control the terms of the transactions, such as the interest rate and down payments.

The original property owner usually wants the investor to pay off the down payment in five years or less. For instance, if a property sells for $300,000, and the buyer can only secure $250,000, the seller will carry the remaining $50,000 at a different interest rate and terms. 

Wrap Around Subject to

The wrap-around subject to is the least used type of subject to mortgage. In this type, the loan’s interest rate is based on the original mortgage loan but with an additional interest rate. 

Since the seller has to pay off the interest on their mortgage from their lender, they ask the buyer/investor to pay the amount at an additional interest rate on top of the original interest rate to cover that. 

For instance, if the original property owner’s mortgage is 4%, the seller will ask the investor to pay 6% on the carryback. 

Usually, at low-interest rates, this isn’t much of an issue. However, if the seller had a higher interest rate, the situation isn’t ideal for the buyer. 

How Does It Work?

In a subject to mortgage, the seller transfers the property’s title to the buyer. However, the existing mortgage on the property remains in the seller’s name, and the buyer agrees to pay off the mortgage in monthly installments in place of the seller. 

Even if the seller remains responsible for the mortgage, they have no say or control over how the buyer uses the property, and they may be required to vacate the property as per the buyer’s demands. 

When the subject to real estate is completed, the buyer now legally owns the property, which means they can do what they want with it (such as renting it out or renovating the property and making upgrades). 

Pace Morby’s Subject to Real Estate Investment Course

Pace Morby is a well-known mentor in real estate investing. He calls himself a creative finance junkieand publishes tons of social media content about real estate investing. 

A popular method by Pace Morby, also known as the Morby Method, allows investors to negotiate subject to deals with little to no down payments, even if the seller requests a sizable down payment as part of the deal.

His program is an advanced real estate course on subject to loans and financing real estate deals through the Morby Method. The program has helped tons of investors acquire more properties and close more deals with creative financing. 

Pace Morby with Jamil Damji
Pace Morby pictured with Jamil Damji. Pace is a well known sub to mentor and teaches the Morby method.

How To Find Subject to Properties

If you are a real estate investor and do your own marketing, you may be unknowingly stubmbling across dozens of potential sub to leads. Most sellers don’t realize that investors will often times pay more money for the house in a seller financed transaction. Many investors who are not educated on sub to don’t even pitch it to sellers.

You can also find subject to properties through real estate agents, attorneys, and at auctions and short sales. You can also search for subject to properties through your local newspaper. 

Additionally, you can easily find subject to properties by searching online with the following websites: 

Final Thoughts 

Subject to real estate investments are beneficial for the seller since they can potentially avoid financial ruin and foreclosure, as well as for the buyer since these investments don’t require credit checks and need little money to get started. 

Additionally, subject to real estate investing is cheaper and has lower upfront costs compared to a traditional real estate deal. There are no bank fees, no real estate agent commissions, and the lender doesn’t even need to be notified when this type of transaction takes place.

It’s also a great way to build a portfolio of income-generating real estate as an investor. By using the Morby Method, you can use subject to real estate investing to your advantage and finance more deals this year.

For more information on how to get started with real estate investing, visit our website or send us an email at info@crushingrei.com.

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About the author: Ryan hovers around a 10-20 handicap any given day. But the talent is there, no question.