Real estate deals which are subject to the existing mortgage are creative ways to invest in real estate which can come with unique risks and benefits. Knowing what those are, can give you a better picture of the process and whether it is right for your investment strategy.
One of the first things you learn about how to invest in real estate is that accurately evaluating the risks of each deal is the key to success. This is true about “subject to” deals as well. Some of the risks include the lender calling the note due when they find out about the deal. If the lender is not willing to work with you, then you will have to refinance or have the property repossessed. This can subject you to fines from the seller as well as from the lender and any tenants you have in the property. When you talk to investment pros who use this strategy, however, you will find that this is a rare occurrence and that many investors have never seen it happen.
Some of the benefits to these deals include lower interest rates and faster transaction times. Interest rates change all the time and if the seller has a lower fixed rate than you could get on a new mortgage for the property, then taking over their payments can save you a lot of money in the long run. You can also lock in timely offers without having to wait for loan approvals or when you are not eligible for the type of mortgage you would need. If you can make the payments and get the right paperwork in, you are good to flip or rent out the property.
Real estate deals which are “subject to” often get a bad reputation and are sometimes called illegal or unethical, but they come with many of the same risks and benefits that other deals do. These are good ways to lock in lower interest payments for real estate and can be creative ways to invest when you cannot get your own loan in time.