The “Subject to” Purchase Strategy: A Powerful Tool for Real Estate Investors
In the world of real estate investmentIntroduction:
Real estate investors employ diverse strategies for property acquisition and profit optimization. One such tactic is the ‘Subject to’ purchase, where investors acquire a property while retaining the existing mortgage. This approach involves taking over the mortgage payments without securing a new loan in the buyer’s name. The ‘Subject to’ strategy proves advantageous, particularly in times of high interest rates and loan costs. It allows investors to leverage existing loans, eliminating the need for new loan applications, use of personal credit, or substantial upfront payments. Instead, investors commit to managing monthly payments on the existing mortgage until it’s paid off. This method becomes especially beneficial when interest rates are high, providing investors with lower rates than they could secure with a new loan. Assuming existing loans enables investors to trim costs and optimize profits
The “Subject to” purchase of a property also provides flexibility to investors regarding property
acquisition. They can focus on properties with favorable mortgage loans, allowing them to obtain better terms and conditions compared to getting a new loan. Additionally, this strategy may enable them to access properties that might otherwise be out of reach due to credit or financial restrictions.
The experience of a real estate investor can be enlightening in understanding the benefits of buying a property “Subject to.” In the case of the mentioned investor, he began his journey by acquiring an affordable property in Houston and making improvements to it over two years. As he gained more knowledge and experience in the field, he ventured into exploring different strategies, including the purchase of properties “Subject to.”
The “Subject to”
purchase strategy opened his mind to new possibilities and allowed him to acquire properties without using his own credit or money. This provided him with the opportunity for quick and efficient transactions without the need for third-party approval. Through his experience, the investor highlights the importance of education and action in the real estate world.
Identifying motivated sellers for this type of sale poses a challenge, but several strategies can help. A common approach is targeting sellers behind on mortgage payments, often desperate and open to quick property sales. Acquiring pre-foreclosure lists is one method, revealing individuals at risk of property loss. Contacting them before foreclosure auctions, typically on the first Tuesday of each month, provides a proactive advantage. Another valuable list involves loan modifications, where individuals facing financial challenges may consider selling even after loan adjustments. Such modifications could include reduced interest, adjusted principal amounts, or setting up a second loan to cover overdue payments due to life difficulties like health problems, divorce, or unemployment
It is essential to note that not all properties with payment issues are attractive to investors
If the property’s value is too close to the mortgage debt, it is unlikely that an investor will see a profitable opportunity in the purchase. Therefore, it is important to carefully analyze the figures and explain to the seller why this sales option may be the best for them.
In negotiations with sellers, it is essential to present compelling arguments that highlight the benefits of this sales option. Some of the arguments that can be used include:
Avoiding total loss: If the seller waits for the bank to carry out the foreclosure, they will lose the property and will not obtain any benefit. By selling quickly, they can at least get some money and avoid an even more unfavorable situation.
Protecting credit: A foreclosure process has a lasting negative impact on the seller’s credit history. By selling quickly, they can avoid this damage and have a chance to recover more quickly in the future.
Ensuring payment: As an investor, it is crucial to explain to the seller that your goal is to pay the mortgage on time. This provides peace of mind to the seller, knowing they will not face further financial problems related to the property.
Negotiation flexibility: By working with an investor, the seller has the option to discuss different solutions that suit their needs. For example, they can agree on a period of time to sell the property, or they can even be allowed to execute a buyback clause if circumstances change.
Conclusion:
The “Subject to” purchase strategy is a powerful tool for real estate investors. It allows them to acquire properties without the need for new loans, using their own credit, or paying large sums of money. By leveraging existing loans and favorable interest rates, investors can maximize their profits and access properties that might otherwise be out of their reach. If you are interested in the field of real estate investment, consider exploring the “Subject to” purchase strategy as a viable and profitable option. Always remember to educate yourself adequately and seek professional advice before engaging in any real estate transactions.