Patrick is also a friend of mine on Twitter.  The topic he is dealing with today is structuring a deal with the method of Subject 2.

If buying property subject-to has been somewhat of a mystery to you, I hope that I can clear it up for you today because it’s an extremely powerful way to leverage your way into more deals and build massive wealth.

I’m going to cover what it means to buy property subject-to, the truth behind the due on sale clause, how buying property subject-to can leverage your way into more deals and build massive wealth, and how to safeguard yourself for success.

What Does it Mean to Buy a Property Subject-to

When you hear about an investor buying a property “subject to,” it means that the underlying loan was not cashed out when the property was purchased. The investor simply took over payments on the existing loan.

In traditional real estate transactions, the buyer brings in a loan for whatever amount is required as per the purchase price and the underlying financing is paid off at closing. But instead with subject tos, the investor simply leaves the seller’s loan in place and starts making the monthly payments after closing.

The Truth about the Due on Sale Clause

You may have heard of the due on sale clause. This is a clause in practically every loan today that states that if a property’s title is transferred, the lender has the option to call the loan due and payable in full. But . . . the due on sale clause is a contractual right, not a law.

Remember, banks lend money to make interest. As long as you make timely payments, you will most likely be OK. Plus, there are ways to protect yourself when buying subject-to so that a loan is highly unlikely to be called due.

I’ve been buying houses subject-to for years and have never run into any problems.

Leverage Your Way into More Deals and Build Massive Wealth

Just think of buying property subject-to as seller financing. The seller is financing to you, the investor, whatever amount is owed on the underlying loan.

Let’s say that a seller owes $150K on their house, and it’s worth $200K. The seller really needs to sell and just wants debt relief. He or she wants to get out from under the payment on the home and rid themselves of the burden of this unwanted property.

If you aren’t privy to buying property subject-to, your only option to buy the house would be to bring in a loan for $150K to pay off the seller’s debt. But, if you know how to harness the power of buying property subject-to, all you would have to pay would be closing costs! I don’t know about you, but bringing $150K LESS to closing makes sense to me.

Another huge benefit is when you take over payments on a loan that originated many years ago. You skip over all the front loaded interest years in the amortization schedule. I bought a house several years ago where the loan was already in year 20 of 30. Every time that I make a payment on the house, more than half of it is going in may back pocket due to pay down! That’s how to build massive wealth!

How to Safeguard Yourself for Success

Here are a few quick tips to safeguard yourself for success when buying subject-to:

1.       Take Title in a Land Trust – One exception to the due on sale clause is when the title to a property is passed into trust for estate planning purposes. I buy all of my property in separate land trusts. If a lender ever looked at the chain of title, they would see that the previous seller owned it in their personal name and then deeded the property into trust. There would be no reason for the loan to be called due.

2.        Make Timely Payments – Like I said earlier, as long as a lender is getting paid their interest, they are happy. And, you don’t want to give them any reason to snoop around.

3.       Change Information on the Loan – As soon as you close on a subject-to deal, notify the lender that you will now be managing the property for the previous seller. Give them the new mailing address for the property and change the phone numbers on the account. You want every piece of communication coming to you.

Patrick Riddle has done over 100 deals since he started investing just over 5 years ago. He is considered an expert in creative real estate investing techniques, lease options, short sales, and recruiting private money. He has raised over $6,000,000 in cash from private investors for his company.

Check out Patrick’s creative real estate investing blog for tips and strategies on building massive wealth through real estate.