The Secret To Protecting Yourself
When Doing “subject To” Transactions
By Sean Flanagan
The author has permitted the reprinting and redistribution of this
article.
The Secret to Protecting Yourself When Doing “Subject
To” Transactions
I've been telling my students repeatedly that the key to runaway
success in real estate investing is to have a solid understanding how
to utilize a few creative investing techniques so that they can
capitalize on the opportunities available in today's market. One tool
you need to add to your toolkit if you haven't already is the subject
to deal.
The subject to deal is simply the act of buying somebody's house
subject to the existing financing. It's not a difficult concept and
it's not hard to implement. It is, however, misunderstood by too many
investors – and in some cases it's abused by so-called Real
Estate investors who should be in a six by nine jail cell and not
roaming around taking advantage of people who don't know any better.
There are a lot of buying situations that lend themselves very well to
using the subject to deal. For instance, if you find a seller who has a
property that had a fair amount of equity in their home before the Real
Estate market tanked, you might find that a lot of other transactions
wouldn't work so well.
A subject to deal could be the answer to your problem.
By buying subject to the existing mortgage you could take possession of
their home and let them ride off into the sunset. Even if they're
facing an impending foreclosure, you could use this technique to gain
possession of the property. It would require you to catch up their
payments with the bank, but it could still very easily be worth your
while, especially if they have favorable financing.
Since the seller is still on the hook with their lender, they're very
likely going to want some assurance that the payments will get made on
on time. While you can swear on a stack of Bibles that you'll make the
payments faithfully every month, they might need additional proof.
As a last resort, you could find a title company or a lawyer that could
take your payment every month, forward the mortgage company their
share, and the balance to the seller. This is a common strategy and a
common technique. That way, the seller knows that the payment is making
it all the way to the lender each month. This gives both of you some
added peace of mind.
The subject to deal is getting a bit of a black eye in the press right
now by fly by night investors and others running scams on desperate
homeowners. A few bad players are screwing up a perfectly good
technique for everyone else.
Here's how you can cover your rear end and make sure the transaction is
a clean one that will stand the test of time.
The key here is to be a Real Estate investor with honesty, integrity,
and a willingness to shine the bright light of truth on the entire
transaction.
- Explain the transaction fully – You may be dealing with
somebody in a financial pinch, but they are still people deserving of
an honest, full explanation of what they are getting into. By
explaining the transaction completely it helps to take away a complaint
later that they didn't understand what they were getting into.
- Disclose that you are buying their home – Some sellers may
not fully comprehend that they are actually losing any equity they have
in their home. Make sure they understand the terms of your deal. The
bright light of truth is preferable to dancing around the shadows of
lies and half truths any day of the week.
- Explain that they are still responsible for the mortgage until the
loan is paid off – A common complaint that sellers have is
that they thought by signing the subject to agreement that they would
no longer be responsible for the underlying mortgage. Be sure they know
what the deal means.
- Have them explain in writing what their understanding of your
transaction is – It's one thing to explain a transaction
until you're blue in the face. It's even better that the seller
understands the transaction so clearly that they can explain it in
their own words. By having them explain it in their own words you can
know absolutely that they know exactly what sort of transaction they're
signing off on.
The best advice you can take on your subject to transactions is to make
certain that everything you do avoids even the appearance of being a
shady deal. Will this runaway honesty cost you deals It's possible that
it could. But it also helps guarantee that the transactions that you do
are clearly understood by both parties and that you can sleep soundly
at night.
Real estate investing is tough enough. Learn the ins and outs of
subject to transactions so you can experience the kinds of returns that
will secure your ability to declare yourself a real estate investing
success story that won't be subject to judicial review.
Sean Flanagan went from dead broke, living off Ramen Noodles and
selling used pallets from the roadside for $20 a day, to a self made
real estate multimillionaire in under 2 years time. He has a FREE audio
course which you can get right now by quickly visiting
httpwww.yuckyhouseleads.com . He also gives away a coaching program for
new real estate investors at httpwww.yuckyhousesystems.com
If
you would like to take advantage of the market and learn how to invest
in real estate and you are local to the Dallas Fort Worth area, I know
a really great teacher and mentor here in Arlington Texas. Please take
a look at his web site: DennisJHenson.com,
Dennis has a great Mentoring and training program, I know because I am
one of his former students. I learned a lot from his one on one
teaching technique. - Michael Harman 817-457-7572
mchfun.business@gmail.com
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