In today’s market, a lot of investors think subject to deals are the answer to everyone’s problem. It’s not illegal but some of the problems associated with these deals are:
- The lender can call the entire loan balance due.
- Taxes and insurance go up every year and the lender may apply your payments to the taxes and insurance instead of the mortgage.
- If you take a property that has an adjustable rate mortgage, the interest rate and payments go up over time. Your renters may not be able to keep up with the increases if you use this as in income property.
- Subject to is not a complete business model. It’s not the only technique when it comes to buying real estate.
Subject to is a disclosure to any exceptions (such as mortgages, property taxes, liens, and judgments) to a free and clear title. Handled only between the buyer and seller, this type of deal is a good option for a real estate investor. Most people who will deed away their property need to be able to make their mortgage payments so they aren’t worried about making a lot of money. Their goal is to help their financial problems and not damage their credit.
There are several reasons I’m not buying as many subject to deals as I used to.
- Institutional lenders don’t care about you. They just want their money.
- If properties were financed at the peak of the market (2008), there’s not much equity in those properties.
- HIgh payments with a high loan balance might not let you rent them for enough to pay the mortgage.
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