FAIR HOUSING NOTICE ON NYS HUMAN RIGHTS LAW

Pros & Cons of "Subject-to" Real Estate

by Diana Hellman 06/20/2021

Image by Gerd Altmann from Pixabay

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.

    Home Loan
    Investment
    Mortgage
    About the Author
    Author

    Diana Hellman

     Diana Hellman's passion for Larchmont inspires her more than 20 year real estate practice. As a certified buyer's representative, "The development of a solid and trusting relationship with my buyers and sellers is what I strive for." This success, primarily built on client referrals and repeat business, comes from her knowledge of what makes Larchmont unique: it's school system, recreational facilities, services and the special qualities that pervade this village's atmosphere. A former educator with a background in psychology, Diana knows that people don't want a sales pitch, but rather reliable, timely information. She and her husband have been residents of Larchmont for over 40 years. Her 3 children have attended the Mamaroneck Public Schools. She can give you expert advice with the sale or purchase of your home. Awards/Distinctions Multi-million dollar club- Westchester Board of Realtors International Diamond Society (8 million plus in sales), 5-Star agent in 2024. Gold Award- WBR (5-8 million dollars in sales) Silver Award – WBR (3-5 million dollars in sales) Memberships National Association of Realtors New York State Association of Realtors Westchester Board of Realtors Westchester Multiple Listing Service Community Former executive board member of the Central School Former selection school delegate for election of school board candidates Former executive board member of the Friends of the Emelin Theatre Former executive board member of the League of Women Voters