Subject to deals

Investing in real estate is unlike investing in the stock market, or any other medium of investing. With real estate, you're able to execute deals that are unique, fun, and at times historic. Today I want to talk about a specific strategy of investing in real estate. Today I am going to talk about the subject to deal.

A subject to deal is very unique because it allows you to 1) utilize private financing and 2) limit your liability exposure. Over last few months, subject to deals have had a bad rap because of unethical and downright shady individuals. I'm talking about the scam artists that take advantage of people in need for the own benefit. A true subject to deal is a win-win situation for all parties involved.

So let's paint out an ideal situation. Let's say Joe owns a three-bedroom two-bathroom house. He's owned this house for over five years. Now Joe is like any other American, pays his bills on time, has a nice house, a good job, and a growing family. Like many Americans today, Joe just learned that he's going to lose his job. This is truly unfortunate because for this scenario Joe is going to have difficulties finding another job.

So days turn into weeks, and weeks turn into months. Joe starts to fall behind on all those bills, even his mortgage. Warning letters start to come in the mail, and Joe gets worried. Joe soon realizes that he's going to have to file for bankruptcy because he can't afford to pay off his house anymore. This is a horrible situation for anybody to be in. Fortunately there is a way we can help.

Before I go on any further, I would like to simply point out that if this strategy interests you, please educate yourself first before attempting to do it. Like with anything I talk about, I will not be responsible for anybody being stupid, ignorant, again stupid, and again ignorant. Please please please with sugar on top, seek the advice of a professional first before you do anything!

Like I said above this could be a win-win situation. Whether or not Joe likes to, he's going to lose his house. What we're able to do is help Joe save his credit. A subject to deal is a deal that is subject to existing financing; where we want to acquire a house without taking out a new mortgage. We negotiate a purchase price, and keep the existing mortgage in place, and make payments on that mortgage. We do not put our name on mortgage, in fact the bank should never know that were making payments for Joe.

Now the bank may not like this. What is happening is Joe will sign over the deed to the house to us, and in exchange we will make payments on his mortgage for him. If needed, we will give Joe a premium, which ideally will be used to bring the mortgage current. This sudden influx of money into Joe's credit, as well as consistent payments on Joe's mortgage will undoubtedly help Joe's credit. Joe was already going to lose his house from the start; all we did was simply help Joe's credit.

So Joe is happy.

And we are happy, because we just acquired a house with having to deal with applying for new mortgage. If we negotiated the purchase price higher than the mortgage amount, we could simply send a second check every month to Joe to pay off this separate amount.

I mentioned above, you do not want to tell the bank about this. The bank may be a little bit upset that the person on file for that mortgage just signed over their house to a complete stranger. Sometimes there is a clause in loan documents that states the bank may call a loan due within 30 days if they discover this has happened. But think about this for a second: if a bank is getting its money every single month without interruption, do you really think they're going to say anything? After all a bank really makes its money off the interests of that mortgage. So why would they want to screw up a good thing? So my point here is this: what the bank doesn't know won't hurt them, just make sure you make every single payment on time.

So overall, I hope you can see the power of the strategy. Again please consult the advice of a professional first before you embark on such an endeavor.

Until next time,
John