Subject-To Deals Risky?

[Dylan Speer]

Hi everyone,

I recently got contacted by an investor who is interested in doing a "subject to" deal on a condo I own. The proposal sounds promising, and I wanted to reach out to see if anyone here has experience with this type of arrangement.

The investor has offered to give me $10,000 upfront, which seems to indicate that he has some skin in the game. Additionally, he mentioned that a lawyer would be involved in the transaction, which provides some reassurance. However, I'm still cautious and want to ensure I'm not missing any critical details.

Has anyone here done a subject-to deal before? How did it go, and what should I watch out for? Also, with the investor putting down $10k upfront, does this typically mean they're more likely to keep up with the mortgage payments?

I'd appreciate any insights, advice, or experiences you can share. Thanks in advance for your help!

Best,

Dylan 

[Don Konipol]

Quote from @Corby Goade:

I don't like em. 

If you aren't in financial distress, what is the benefit to you, as the seller? To save yourself from foreclosure, it might be an option, but otherwise the buyer gets all of the benefits with very little risk. There's a reason this is the preferred method for new buyers with little to no capital. 

I have sold subject to a number of times, and I want suffering any financial distress.  Here were some of the benefits to me as a seller of selling sub to

1. By offering sub to financing, you increase the universe of potential buyers to include those unable or unwilling to obtain a new loan.  This results in the ability to obtain a greater price than a cash transaction would.

2. If the loan on the property is a significantly below the current interest rate, and the buyer also saves origination fees and costs, this enables the seller to demand a higher price while the buyer still obtains his ROI objectives

3. If the seller does a “wrap” mortgage and the wrap is for more than the interest rate on the underlying mortgage, the seller retains the differential as monthly net and may be able to create a note with a high double digit yield.

4. Many properties, especially commercial properties, take 60 days or more to go through financing underwriting.  A sub  to transaction can be completed in 3-10 days.  If selling quickly is important to the seller, this is a doable alternative.

5. Some properties are in a position either through disrepair or tenant vacancies that they simply can not be financed at anything close to a reasonable interest rate.  A sub to sale may be the only way to sell such property.  Even if a cash buyer can be found the cash value may be so low that the seller would have to bring a high amount of cash to closing to make up the shortfall amount needed to payoff the mortgage loan. 

6. For a variety of reasons, it may be necessary for a property owner to no longer hold legal title to a property or have an entity he controls hold title.  Sub to allows title to be “parked” in the name of a trusted friend or family member without that person having to obtain a loan or have legal liability for that loan.  

7. A buyer may be planning to purchase the subject property for cash when a liquidity event he’s anticipating occurs.  Selling to him sub to allows the seller to get out of a property sooner rather than later (if that’s what’s desired) and have the loan paid off when the buyer has his liquidity event. 

doing any CREATIVE  real estate deal SUCCESSFULLY requires the knowledge, experience and capital to be able to set up the transaction properly, with safeguards in place, and structure the transaction so both parties have positive reinforcement to “make it work”.  It also requires the ability to evaluate the party on the other side of the transaction, making judgements that go far beyond credit score or balance sheets.  If you don’t possess, or don’t YET possess those abilities, then stay away from creative transactions, unless you employ someone who does have those abilities to respresent you.