Pros & Cons of "Subject-to" Real Estate Investment

by Lifestyle Group Daytona Beach 06/21/2020

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.

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About the Author

Lifestyle Group Daytona Beach

Specializing in Commercial Real Estate and Luxury Homes in Ponce Inlet, Ormond Beach, Daytona Beach and Port Orange

After graduating from the University of Central Florida with a degree in Finance, I spent over twenty years in wealth management in Central Florida. In addition to Wealth Management, I have operated Hotels, Property Management Companies, and multiple internet ventures. My professional knowledge has helped me succeed in my own entrepreneurial endeavors. My personal business experience has led to growing many businesses as a private equity investor and managing partner. I am currently involved in business ventures within the Real Estate, Software and Apparel space.

Daytona Beach has been my home for more than thirty years. I take pride in my community and have contributed to its success through participation on a number of boards. I am currently serving as the Chair of the Daytona Beach Chamber's Economic Development Committee. This particular committee has been focused on the redevelopment of Daytona's beachside community. I look forward to continuing to serve this community through both personal and business endeavors.