"Subject-to" Real Estate Pros & Cons

by Gema Smith 02/28/2021

When you're considering buying real estate as an investment, it's a good idea to weigh the pros and cons. That's especially important with "subject-to" real estate, because there can be risks and rewards with this type of property that are different from traditional purchases. Here's what you should be considering, before you decide on this investment strategy.

The Pros of "Subject-To" Real Estate

On the "pro" side of buying "subject-to" real estate is the way you can acquire multiple properties for your portfolio. Additional benefits include:

There's no need to get a mortgage in your name, so you won't be overextending your credit or finances.

You avoid a lot of the transaction fees that come with getting a mortgage and buying a property.

You can close on the property quickly, and you'll pay fewer title company fees in the process.

You can buy as many properties as you want, as fast as you want, and all you have to do is make the mortgage payments.

You'll be helping sellers who are facing foreclosure or otherwise need to get out from under their house payments.

The Cons of "Subject-To" Real Estate

With any real estate transaction or investment of any kind, there are cons that come along with the pros. When you weigh them carefully, here's what you should be thinking about:

If the seller files bankruptcy, the original lender could foreclose on the property and you may lose your investment.

The lender could exercise their "due on sale clause," and require that the current mortgage balance be paid in full.

The deed could be tainted in some way, and without title insurance in your name you might not be protected.

You may end up spending money on an attorney if something goes wrong during the process.

Technically, the bank still owns the home because there's a mortgage on it.

Why Choose This Type of Real Estate Investment?

If you don't have the money or credit to buy investment properties, buying "subject-to" can be a good choice if you understand and mitigate the risks. You may also want to choose this option if you're trying to acquire a lot of properties quickly, and you want to save money over traditional purchasing options. For people who buy "subject-to", there can be big opportunities to buy quality properties they might not be able to afford under typical circumstances.

But it's very important that you're aware of the risks and legalities. Getting an attorney to help you with the first few properties, and to collect and make the mortgage payments on all the properties you buy, can be one of the ways you can make this type of transaction safer and better for you and the seller.

Investment

Home Loan

Mortgage

About the Author

Gema Smith

Gema S. Smith has been an influential pioneer in the luxury real estate industry for over 30 years. With a reputation for providing first-class service and garnering impeccable results for her clients, Gema’s accomplishments have earned her mentions in San Jose Magazine as well as two State of California Senate Certificates of Recognition.