What is the Subject-To and Conventional Sale Strategy?
Subject-To and Conventional Sale
Acquiring real estate “Subject To” is an investment strategy that allows investors to acquire a property with little or no money out of pocket by leaving the seller’s existing mortgage in place. More simply, the investor does not have to get a loan through a bank or hard money lender to buy the property because they have purchased the property “subject to” the existing loan or loans.
A conventional sale is a sale where the bank will make a conventional loan in the form of a mortgage to the new homeowner using the acquired property as collateral.
The benefit to the seller with the subject-to and conventional sale strategy is that they will be able to sell an unsellable house to an investor typically without having to come out of pocket and be out of the mortgage quickly. While the seller is ultimately responsible for the mortgage payment, the big benefit to them is that the investor is looking to fix up and flip to an end buyer as quickly as possible, ridding the original seller of that dreadful mortgage. The benefit of the subject-to and conventional sale to the investor is that they will obtain control of the property without using any of their own credit and, in many cases, not having to use any of their own money.
Subject-to and Conventional Sale | When to use?
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Whenever I’ve used the subject-to and conventional sale strategy, the asset is in distress and there is at least 40% equity in the property. If there is no equity in the property, it makes no sense to flip. Typically, the seller is behind on payments and the property hasn’t sold because it is in need of repair. For the investor, this becomes an opportunity to perform a fix and flip while not having to acquire a large sum of private money. This strategy can save investors money on up front lending points and high holding costs due to high interest rates. If you can pick up a property at a discount that requires minimal investment and can be flipped quickly, then acquiring the property with subject-to financing makes sense.
Subject-to and Conventional Sale | Do I have to use a Realtor?
No, the investor may choose to resell as a For Sale By Owner in order to save on the expense of a Realtor. However, using a Realtor does have its benefits. But if you’re looking to save money and still want to list your property on the Multiple Listings Service (MLS), then you may wish to consider a flat fee listing. A flat fee listing is where a Realtor will list your property on the MLS for a flat fee and then a small commission on the back end. For me the cost has typically been $299 up front and .50% on the back end. On a $100,000 house, instead of paying my Realtor (the seller) $3,000, I would have only paid $299 up from and $500 on the back end for a total of $799. Anytime you can save $2200 on a flip, it makes sense to do so!
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