Doing Real Estate Deals With No Money Using Subject To and Owner Financing

This article is the third in a series of seventeen articles that will give readers insights into how real estate investors are able to do transactions with little or no money, no credit and little or no risk. In this part of the series we will discuss the technique that is a combination of previous Parts #1 and #2. The first was "subject to" and the second was seller financing. Both work very well to give an investor the ability to control a property until it can be sold or to be held as a rental property. But what about the combination of the two and how well do they work in conjunction with one another?

As a brief review, subject to transactions are where the homeowner is motivated to sell his property, so much so that he is willing to allow a buyer to assume his mortgage payments in exchange for a deed to the property. This allows for a quick sale, no credit or lender qualifications for the buyer and no realtor commissions on the sale. The ultimate issue for the homeowner is that he no longer has the power of ownership of the property and he is still responsible for the mortgage payments if the investor doesn't pay them. This can be a win-win for each party involved or a terrible mess for the seller if the investor doesn't do as he agreed to.

In owner financing, the seller takes back part of all of his equity, essentially defers getting it at the closing, in the form of a mortgage. Once again, this form of financing allows the homeowner a quick sale (in just days), no realtor commissions, fair market value for his property, and the buyer doesn't have to get conventional financing which can take months or not happen at all. The risk to the seller and now mortgagee is that the buyer stops paying his mortgage and the former homeowner has to foreclose to get his property back.

The combination of subject to and seller financing is where the seller allows the buyer to assume the mortgage payments of his first mortgage and grants or issues an additional, or junior mortgage, for part or all of the equity in the property. The seller has the ability to foreclose and get his property back if the investor didn't pay the junior mortgage. However, if he did start a foreclosure proceeding, he is facing the very likely prospect that the first, or senior mortgage holder will also start a foreclosure proceeding. If the foreclosure proceeding is successful, the junior note holder, the original homeowner, will have to pay off the first mortgage to get his property back.

As bad as the prospects sound for a seller, the reality is that motivated sellers will frequently do these transactions. In a moral, financial and sometimes legal sense, it is the responsibility of the investor to make timely mortgage payments on both mortgages and if the investor finds that he can't, he should deed the property back to the original seller as quickly as possible. Otherwise, everyone including the senior mortgage holder, the investor, and the seller are damaged in the transaction.

In summary, using a combination of subject to and seller financing allows an investor the ability to purchase properties with little or no money, no credit qualifications and minimal or no risk. Truly motivated sellers will actually pay for the closing costs to get out of the responsibility of paying the existing mortgage on the property. But, remember they still are responsible for its payments if the investor doesn't uphold his obligation. Using a quitclaim deed will virtually eliminate closings costs but it is strongly suggested that any buyer of a property get title insurance to make sure he is getting a marketable, not just insurable, title so he can resell the property later without title defects.

Dave Dinkel has over 35 years experience in real estate investing which has given him a unique perspective into the real estate market. Dave is the author of the best-selling e-courses http://www.fsbopowersellingsystem.com/ and many other e-courses for investors and homeowners. Dave's focus in the past few years is educating the public in a manner that doesn't amount to paying for a master's degree. His recent contribution to this end is the e-course "48 Ways to Create a Massive Buyers List" which can be seen at http://www.MakingaBuyersList.com.