Doing a Subject-to Deal?

Posted on July 7, 2014 by

In last month’s column, we outlined a Subject-to Deal. This month let’s look at this advanced deal-structuring technique in action. (NOTE: You can find last month’s column here on

In mid-March, we got a call from an experienced investor. He owned several single-family rental homes. He had received a call from a motivated seller, who, because of a difficult family situation, wanted his house sold in less than a week.

For years, this investor had heard me talk about Subject-to Deals. He thought this technique would be the perfect solution for this seller’s problem, and called to see if I’d help him with the deal.

(Sidebar: A Subject-to Deal is when you buy someone’s property, but instead of paying off their mortgage at closing, the seller leaves his mortgage in place, and you agree to make the seller’s mortgage payments, on the seller’s mortgage, for the seller.)

The first thing we did was meet at the seller’s house to discuss the situation and to look at the property.

The seller was a really nice guy who was having some extremely tough family problems. His mortgage was current, but due to his situation, he was worried about falling behind and ruining his credit. He needed to sell his house immediately!

The house was in great condition, in a nice neighborhood, didn’t need any repairs, and was move-in ready.

The problem was, the seller owed about $90,000, but the property was only worth about $90,000. Because there was no equity, there was no way for an investor to buy the property, then sell it, and still make a profit.

The seller had a 30-year, fixed-rate mortgage that was a few years paid. The interest rate was 3.75% with monthly payments of about $420. The property would rent for $900 a month. Monthly expenses (taxes, insurance, repairs, vacancies and management) would be around $315 per month. This means the property, as a rental, would have a net cash flow of around $170 a month from the get-go.

I explained a Subject-to Deal to the seller – including all the risks involved for both him and the buyer. When talking to a seller, always be upfront and matter-of-fact. You’ll sleep better at night – and so will he.

Because the seller could achieve his goal of getting his house sold in a couple of days, he agreed to a Subject-to Deal. We signed a purchase contract with the understanding that we had until closing day to do our due diligence in order to verify the things he told us. He agreed.

Seven days later, we were at the office of Lee Perkins, our long-time real estate attorney. Within fifteen minutes, the deal was closed. The seller got what he wanted – his house sold quickly and his mortgage payments off his back. And the buyer got what he wanted – another really nice cash flowing rental property.

Learning how to do a Subject-to Deal puts another tool in your creative deal-structuring toolbox that helps you make the impossible deals possible!

Bill & Kim CookBill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.

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