TLDR;
This video focuses on the creative financing strategy called Subject To, which enables investors to buy real estate without assuming the original owner’s loan liability. It explains the process of taking over existing loan payments, how to determine the value and equity of a property, and the necessary steps to structure a successful Subject To deal. The video also includes a real-life case study and emphasizes the importance of proper legal documentation.
- Subject To allows investors to assume existing loan payments without taking over the liability.
- The video outlines six steps to successfully structure a Subject To deal.
Understanding Subject To Financing [0:00]
In this chapter, Jerry Norton introduces the concept of Subject To financing and differentiates it from conventional financing. Conventional methods typically require extensive documentation, whereas Subject To involves taking over existing loan payments without needing to refinance or qualify for a new loan. Norton highlights the flexibility of creative financing, allowing investors to negotiate based on their unique situations.
How Subject To Works [0:30]
Norton explains the mechanics of Subject To financing, emphasizing that the existing loan remains in the original owner’s name, which means the bank can hold the original owner responsible in case of default. The investor creates a contract that allows them to control the property while the loan liability stays with the seller. He points out that the lender typically does not enforce the due-on-sale clause, allowing the transaction to proceed without issues.
Steps to Structuring a Subject To Deal [4:22]
The video highlights the six steps necessary to structure a Subject To deal. Step one involves understanding the existing loan terms, including current balance, interest rate, and payment details. Step two assesses the property’s equity. Step three involves determining an exit strategy, and step four addresses potential out-of-pocket expenses, including overdue payments and property taxes. Step five discusses offering cash to the seller at closing to facilitate the deal. Lastly, Norton advises hiring a Sub-To attorney for proper paperwork.
Case Study: Successful Subject To Flip [7:20]
Norton shares a case study of a student, Phil Robertson, who successfully executed a Subject To deal. Phil took over a property with a $175,000 loan and a market value of $260,000 but incurred approximately $15,000 in upfront costs, including seller cash and overdue payments. He quickly sold the property, resulting in a profit of $65,000 after paying off the existing loan. The example illustrates the potential profitability of the Subject To strategy when executed correctly.
Conclusion and Next Steps [8:40]
Norton concludes by encouraging viewers to apply the knowledge gained and invites them to subscribe for further content. The video emphasizes that while financial returns matter, achieving time and freedom to enjoy life is the ultimate goal for investors. He also mentions the next video in the series, which will cover lease options and master leases as additional financing strategies.
