I think I've been wrong about subject-to deals.

[Scott E.]

Alright so full disclosure first - I have always been very apprehensive to follow anybody who promotes a "get rich easy" style of real estate investing, specifically those that say beginners should be doing subject-to deals and wholesaling. I've done dozens of deals myself over the past 10+ years and every one of them I've had to put in a combination of my money, blood, sweat, and tears. So the idea of buying a deal with no money, credit, or qualifications always just sounded like some goofy fake concept to me. But maybe I was very wrong to think this way.

With all that being said, I took the time this week to really start to understand exactly how subject-to deals work, and I'm not going to lie, I'm intrigued.

If you aren't familiar with subject-to, this YouTube video with one of the biggerpockets podcast hosts explains how it works really well. And this is the video that got my gears turning.

Seems like the biggest downside to doing a deal this way is that you are basically guaranteed to pay at or over retail for the property. Meaning that you are walking into the deal with negative equity.

To combat this downside, you need to focus solely on the cashflow. Plus you need to plan to hold the property for long enough for the home to appreciate, AND the tenant to pay down your mortgage (I'd estimate ~5-10 years)

The biggest upside though (especially in this market) is that if you can pull this off, you can assume very cheap, fixed rate debt, somewhere in the 3% range. Not to mention you don't need to put any of your own money into the deal so there is no limit in your ability to scale.

Curious to hear others thoughts on this. I've been close-minded on the concept for a while. But now I'm starting to think that I should consider pursuing subject-to deals as part of my 2023 investing strategy.

[Rick Pozos]

@Scott E.I have purchased maybe 10 homes sub-to in the last 20 years. About half were pre-foreclosures, but half were people who were current on their mortgage. They were NEVER at or above market price. You still have to get the property at some sort of discount. Maybe its just me, but I dont like to over pay for my properties. There is nothing that says you have to over pay. You could just walk away from that deal. I do.

I always make sure that the homeowner is taken care of somehow so that they have a place to go and make sure they have some money to get started over again. BUT I have at least SOME equity.