What is the perfect motivated seller candidate for subject-to?

[Jeremy Sharp]

I was wondering what are great candidates for buying a property subject to. I was thinking the perfect subject-to candidate to buy a house from would be someone with a house in great condition who needs to move, someone like a military couple who bought the house within the last 5 years who don't have the time and energy to put it up for sale with a realtor.

Someone with a good conditioned house who is behind on payments is a good candidate also, but you need to come up with money to catch on their bank payments and pay for a little repairs.

What would also be a good candidate for buying a house subject-to?

[Don Konipol]

@Jeremy Sharp

The whole subject to method of buying property got popularized in the late 1970s when interest rates reached double digits, eventually going to mortgage rates of 18%. Because so few people qualified for buying homes at these interest rates, the options for sellers were either to keep their property on the market a year or more hoping for a qualified buyer, lowering there price drastically thereby attracting a buyer with the liquid assets to make a cash purchase, or sell their property allowing their mortgage to be assumed and providing a seller financed second mortgage to make up the difference between the borrowers normal down payment and the existing first lien mortgage.

In those days most mortgage notes didn’t contain a due on sale clause and were assumable. But investors didn’t want the liability of assuming mortgages and hence the subject to purchase method was born. Sellers never did seem to catch on that this made the buyer much less “ attached” to the property and hence more likely to just walk away if thing went sideways.

As mortgage rates fell into single digits eventually reaching all time lows, the motivation for doing subject to deals on the sell side was greatly reduced. Additionally sellers began to “wise up” to the risk they were incurring by selling subject to and their reduced credit capacity by retaining full liability for note payments and the mortgage loan. Subject to became a method almost exclusively used in situations where the property owner has used a low down payment option, like 3% down, had recently purchased the property, the sale wouldn’t produce enough proceeds to pay closing costs and the Realtor’s commission, and the seller couldn’t afford or was behind on his payments. Buyers would walk in for little or no money and relieve the seller of having to make monthly payments and perhaps salvage his credit rating. The buyers couldn’t profitably rent the property as mortgage payments, insurance, taxes and maintenance would result in negative cash flow. They used these properties to lease with an option to buy (lease option) essentially obtaining way above market “rents” with the above market amount the result of the option premium.

We’ve seen average price appreciation of 18% in the last 12 months so the motivators for sellers to sell subject to no longer exist. With low inventory, houses hitting the market receiving multiple offers in less than a week, many with no contingencies, some for all cash and 2 week closing, there’s no motivation for a seller to deal with the potential negative consequences of selling subject to.

Finding subject to deals in todays market is like looking for a needle in a haystack.