"Subject To" Real Estate Agreements*

"Subject To" financing can actually be a win-win situation for both the seller and the buyer or investor – assuming that both parties understand their obligations to one another. The seller usually gets to sell his or her property at the original asking price, and the buyer and/or investor usually gets the real estate with very little money down, if any, while not having to qualify for any bank loans.

We know that traditional real estate investing is mainly about buying low and selling high, and then making a profit from that difference. This usually happens over time. There's absolutely no secret to that. While doing it this way, of course, you would incur all the paperwork and everything else that goes along with buying and selling real estate like paying all the transaction fees that are involved. These fees include things like commissions, closing costs, title, recording fees, and, of course, your time. On an average, the whole process takes anywhere from six weeks up to six months – depending on the contributing factors and situation.

Creative financing, or "other than" traditional and/or conventional real estate investing, is basically working out an agreement that is fair to both the seller and the buyer, without using banks or mortgage brokers. By incorporating this type of financing, the seller can sell their real estate for the price they want, and in a timely fashion. The buyer or investor can create an environment that facilitates making a profit over a period of time.

By leaving out the 'usual suspects' like title companies, professional real estate agents, and loan officers, both parties stand to make the transaction more profitable for the buyer, and more cost effective for the seller. Specifically this can be quite profitable for the real estate investor because in any type of investing, and especially in real estate, it's all about leverage. The leverage is what makes creative financing a powerful, profit-making tool for those looking to start a real estate investing business. The leverage is usually represented by how much money you put into a certain investment, and how much you make from that amount over time. "Subject To" deals make leverage extremely high, since most of the time only a small amount of cash is involved, for usually (hopefully) a much larger return.

Let's review a sample situation which would create an ideal environment for a "Subject To" real estate agreement.

Debbie and Joe Blume bought their house five years ago for a $100,000. After five years, they still owe about $95,000, but their house is now appraised for $160,000. Both Debbie and Joe have accumulated a credit card debt of about $20,000 since that time, and, of course, the interest on that debt is much larger than they really care to carry.

Joe and Debbie take out a second mortgage to pay off their credit card debt, take a vacation and buy a new car. With their second real estate mortgage, they do all those things and have about $10,000 leftover, after everything is done. After about seven months, most of that $10,000 is gone also.

Shortly after this, Joe receives an offer within his company for a higher paying position, but in a different State. Joe and Debbie talk it over, and decide to take the offer and move out of State. Of course, deciding to do that, they must now sell their beautiful home.

Like so many of us, when we look to sell our house, the Blume family talks to a professional real estate agent. The agent informs Joe and Debbie that there is little to no equity left in the house, and tells the Blume's that they will have to pay the real estate agent's commissions out of their own pocket. Of course, Joe and Debbie can't do that, because they ran out of money and are basically living paycheck to paycheck until the new job starts.

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