Wet Feet - Online Marketing and Real Estate Investing Blog

A lot of times I hear a lot of confused new investors talking about Subject to. So what does it really mean? I explain it to the sellers this way:

“I will take over your mortgage payments until I sell the house.”

sub2 means that you are taking(buying) the property subject to existing mortgage in this case. If seller has two mortgages you can take the property subject to both mortgages. If there are any other leans on the property you can take the property subject to those leans too. In essence you are acknowledging that there are liens/deeds to secure debt on the property when the title gets transferred to you.

How to execute a subject to deal:

Step 1. Agree on terms with the seller and sign the contract. (best to get one prepared by the closing attorney you will use to close the deal. And you will always do the closing with the attorney.)

Step 2. Get the seller to sign “authorization to release information” for each loan so you yourself can call the mortgage holder and verify the loan balance, terms, rate, etc. Payoff NEVER equals the principal loan amount.

Step 3. Order a title search. You want to know if there is a tax (or any other) lien on the property besides the mortgage(s) before you sign on the dotted line, because you would be taking those subject to too.

Step 4. After everything checks out as it should, close at the attorney’s office or at escrow agent, whatever laws in your state are. At closing, title (warranty deed or grant deed) gets transferred to you, so now you own the property.

Step 5. Pay the monthly mortgage payments. If you don’t the bank will foreclose and take the property from you. Since you bought the property subject to, the liens are still in place, no matter who is on the title.

And last but not least, do not confuse subject to with assuming the loan. You are not assuming the debt, you are agreeing to pay the payments on the debt. In other words you are not signing for debt personaly; the loans will still show on the sellers credit report.

The most important thing is to take action. Stop wining and looking for excuses, get off your but and do it. If you put your mind to it you can achieve anything you dream up.

I came to USA in November 1998. I had one suitcase full of my earthly possessions and $200 in my pocket. I came from a small country on the Baltic Sea called Lithuania (Lietuva). Long story short I was not born with a silver spoon in my mouth. Everything I have I had to work for. Life was hard in the beginning, no job, no car (and you need to have a car in Atlanta to drive to work) no credit history, new country and new language.

About one year later my wife joined me here. In 2002 we bought our first home in which we still live. Sometime in 2004 I picked up a book by Rober Kiyosaki called “Rich Dad, Poor Dad” and our journey into real estate investing began.

Being a curious person I started reading everything I can find about real estate investing. I found tons and tons of information. I found out that there is million and one way to make money in real estate, but I was not able to find any single source of information which would outline all steps. There was no step by step guide to real estate investing. People who wrote books never did it in practice and the infomercial gurus did it so long ago that it did not matter anymore. So you have to create your own step by step manual on how to invest form all the bits of information you learn.

One thing is clear by now - there is no get rich quick way, even real estate investing is hard work. It is hard work but the pay is good too. Anyhow after about a year of reading books, internet sites and message boards we bought our first rental property.

The best thing about it was that we did it. We took action, we started on our path of financial freedom, but we never stopped learning. I constantly talk to people about investing, listen to their advice, buy books and tapes, read and post on message boards. So education is a good thing, but it all comes down to one thing - can you actually do it? Can you sign on the dotted line?

So you decided to become an investor. Or to be more precise you want your money to work for you instead of the other way around. Great! So you think that real estate is the way to go, and I would agree with you. You see, population grows, but the continents don’t. So we have a situation where supply is limited and demand is growing constantly, which means that over time all real estate will appreciate which means that no matter what you do, you will come on top, if you wait long enough.

Now that we agree that the real estate is definitely worth investing into, let’s pick which path in real estate investing YOU want to choose. There is uncountable number of wait to invest, each with different rewards, involvement levels and activities required. You have to ask yourself what are your investing goals and how much time you can dedicate for your investment carrier.

If your goal is to quit your day job and to support you and your family form real estate investing you must choose different path then if your goal is to accumulate enough for your retirement and cut down on the amount of taxes you pay Uncle Sam each year. Buying and renting a house or two a year will not produce enough income to support you first five to ten years and buying and selling will do nothing but increase your tax footprint. Buying and renting homes will require less time and day to day involvement from you the buying and selling homes.

So think about your goals for a moment and write them down. Those must be concrete and achievable goals like “I want o have 10 rental houses in 10 years free and clear” or “I want to become a full time real estate investor in 1 year”. If you do not write down you goals the are just thoughts, so write them down and work on the plan how to achieve those goals.

You have chosen your path. Now you have to walk it.