Subject-To's: They Pay You
Subject-To's: They Pay You
Traditional subject-to purchases are a great way to make money in today's real estate market. As an investor, you get a call from a motivated seller who simply wants you to take over his mortgage paymentsno money down to own the house. The financial structure and credit arrangement remain in the original owner's name, and you get a house for the price of a mortgage payment. This scenario works great when the property cash flows (i.e. the monthly rental check coming in exceeds the monthly mortgage payment going out), but most investors disregard deals which will negative cash flowaccording to conventional wisdom.
There is another way, however. Consider the above scenario, when the monthly mortgage payment is $2,200, and market rent is $1,800. For the sake of example, let's say you want a $300 monthly cash flow for every property you own. So that's impossible, right? Wrong. If you do your research in advance of the deal, you can negotiate with the seller to include a monthly payment of $700 directly to you, the buyer. This is good for the seller, who now only has to pay $700/month instead of $2,200. It's great for you, because you use the rent and part of the "they pay you" money to pay the mortgage, and the remaining $300/month goes directly into your pocket.
This structure comes with obvious risks. There is no guarantee that the seller will continue to make his monthly payments to you, which can result in negative cash flow for your property. However, if you are a savvy investor, you will include in the subject-to agreement a clause which states you will allow the property to go to foreclosure if the seller's payments are not made to you in a consistent and timely manner. Since the financial work is still in the original owner's name and credit, foreclosure would be a devastating blow to the seller. He would either be highly motivated to pay you, or financially ruined. Even in the worst case, you lose nothing by ceasing payments of the mortgage.
Subject-To's are always a good way to curb the risk of investing in a piece of property, but "they pay you" subject-to's are a special way to profit even from homes which at first glance appear as financial red flags. If the contract is negotiated skillfully and responsibly, then you can receive a monthly check, while ensuring that even in the worst case scenario, you will not lose money on your initial investment.
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