You Closed Your First Subject-To Deal, Now What?
If you are familiar with my real estate investing methods, you know what a subject-to deal is. If you aren’t familiar, I strongly suggest you check out my free Unlimited Funding course to learn how to close profitable deals without using your own money or credit.
Simply put, a subject-to deal is buying the home while keeping the existing loan in place. You, as the investor, will have the deed to the property and will take over the existing loan payments. There is no need for large amounts of cash or using your credit to apply for a new loan.
Once you close your first subject-to deal, you need to know what your plans are for the property. Do you want to sell it outright, rent to a tenant or keep the current loan in place? There are many options, some more profitable than others. Let’s explore some of the most common methods to use after you own the property.
Cash Out & Pay Off The Loan
These methods are generally not the most profitable. However, they are the best ways to offload the property if you need cash quickly. Some examples of when these methods would be used:
- The seller does not want to keep the loan in place for a long time
- The interest rate on the loan is high
- There’s still equity due to the seller that they cannot wait for
- You put money in the deal that you want to get out
- The neighborhood is deteriorating, or the value is expected to decrease.
The methods include:
- Traditional Sale – use an agent to list the property on the local MLS – a buyer will purchase the property by qualifying for a bank loan.
- Round Robin Auction – this entails creating a sense of urgency by holding a private auction where you take bids over the course of a weekend.
- Sell using “For Sale By Owner.”
Again, these aren’t the most profitable ways to sell, but are important to understand.
Sell And Keep The Loan In Place
This owner financing method is the basis of my Niche2Wealth business model and is the fastest way to wealth in REI. The best part is, you do not need to use any of your own money or credit.
The benefits are:
- Buyer doesn’t need good credit
- This enables you to get a premium price for the property, many times above its value
- Upfront profit
- Buyer’s Down Payment
- Positive monthly cash flow
- Backend profit from sales price increase and loan pay-down
Rent Out The Property
This is ideal for long-term appreciation. However, I do not recommend this strategy until you have several years of REI experience. The drawbacks are having to deal with tenants, there are monthly expenses, and it can take several years for a rental to begin producing a substantial income.
Sell On A Lease-Option
In this scenario, you rent the property to a tenant who has the first right to purchase when you sell the property at a later date. You can generally get a higher rent amount, and this option attracts tenants with a homeowner mentality.
All of these strategies work; it is just a matter of knowing which is best for your current situation. Learning how to make long-term investing strategies will be your key to building wealth.