If you really want to make a wealth of money in real estate you must learn to leverage a small amount of your resources to control a lot of property. One of the techniques I like to use is Subject To financing.
Although some states are attempting to pass legislation to regulate or ban this practice, it is still one of the best ways to easily finance a purchase. My advice is to check with a local attorney to verify if laws have been passed in your state relative to purchasing Subject To the existing mortgage.
What makes Subject To financing so powerful is the ability to take title (ownership) to a piece of property while leaving the existing financing in place. In other words, ownership passes to the Buyer, but the loan remains in the name of the Seller, or more precisely, in the name of the original Borrower. You can easily see why this is such a powerful tool: you can fund most or all of the purchase price of a home with the loan that is already in place! The buyer simply makes up the past due payments to bring the loan current, and commits to the Seller to make on time payments in the future, but does not need to secure new financing.
What about the due-on-sale clause that most mortgages contain today? It’s true. The lender does have the right to call the loan due – but NOT the obligation to do so. In fact, it doesn’t make sense for a bank, an institution that is in the money business, to call a performing loan due and risk forcing it into foreclosure. After all, a bank would rather have the on-time payments than the real estate.
What about the Seller? Why would they agree to placing their credit at risk? Since the loan remains in their name, they remain financially responsible. A motivated Seller however, is desperate to eliminate the responsibility for payments. They’re usually facing foreclosure. You’re offering the opportunity to remove the burden, AND at the same time improve their credit rating with on-time payments made in their name.
Are you currently using this powerful technique in your real estate business? Unless your state prohibits it, Subject To financing should become one of your first options for the purchase of investment properties. The bank benefits by having the loan payments caught up and current. The Seller benefits from debt relief and credit improvement. And best of all, you benefit by leveraging a small amount of money to finance your real estate transactions.
Best of Success & Abundance,