Subject to Real Estate: How It Works and When It Makes Sense
Subject to real estate investing lets you take over a property’s existing mortgage without formally assuming the loan. The seller deeds the property to you, and the existing financing stays in place — in the seller’s name — while you make the payments. Done correctly, it gives you access to below-market interest rates and avoids new loan qualification. Done incorrectly, it creates serious legal and financial risk for everyone involved.
Whether you’re reading a subject 2 real estate guide for the first time or building out your real estate buyers guide, this article breaks down how subject-to transactions work, what documentation you need (including a real estate cost basis worksheet for tax tracking), and why you might see st patrick’s day real estate promotions from investors who use this method as part of seasonal marketing.
How Subject to Real Estate Works
The Basic Mechanics
In a subject to real estate deal, the deed transfers to the new buyer but the mortgage stays in the seller’s name. You pay the mortgage directly each month. If you miss payments, the seller’s credit gets damaged — and the lender can call the loan due under the due-on-sale clause most mortgages contain.
Subject 2 real estate investors use this strategy primarily when the seller’s interest rate is well below current market rates. If a seller has a 3% fixed-rate loan on a property you can rent for strong cash flow, taking that loan subject-to costs you far less in financing than securing a new mortgage at 7–8%.
Due-on-Sale Risk
The due-on-sale clause allows the lender to demand full repayment if the property transfers ownership. In practice, lenders rarely invoke this if payments are current. But you should understand that risk when you make this part of your real estate buyers guide for potential deals.
Documentation and Tax Tracking
Every subject to real estate transaction should be documented with a purchase agreement, a deed transfer, a disclosure of terms to the seller, and a written agreement covering how payments will be made. Use a title company that’s familiar with subject-to deals — not all of them are.
For tax purposes, keep a real estate cost basis worksheet from the day you acquire the property. Your cost basis includes the purchase price, closing costs, and any capital improvements you make. This matters when you eventually sell or refinance the property. A real estate cost basis worksheet tracks all of these figures in one place and helps your accountant calculate capital gains accurately.
If you’re building a seasonal marketing calendar, some investors tie promotions to holidays. St patrick’s day real estate campaigns play on “lucky” home-buying themes and run in March when buyer activity starts picking up. These campaigns work best with an existing contact list of motivated sellers. Subject-to deals surface most often in that seller pool.
Bottom line: Subject 2 real estate works as an acquisition strategy when the existing financing terms justify the added complexity. Build a complete real estate buyers guide before presenting the option to sellers — transparency about how the deal works protects both parties and reduces deal fall-through.