HOW TO INVEST ‘SUBJECT TO’ AND OVERCOME THE ‘DUE ON SALE’ CLAUSE MATT THERIAULT
Okay, so that’s how to invest ‘subject to.’ All fine and dandy, right? But what about ethics?
Glad you asked.
If it were unethical or fraudulent, then why would so many different states in their standard state Realtor
Association purchase agreements and paperwork include ‘subject to’ as a financing option on the contract?
California has it, Utah has it, and New York has it, to name a few.
Further, the state bar associations of Alaska, Illinois, and Virginia (among other states) in case after case have
had no problem with lawyers aiding their clients in concealing these types of property transfers using the land
trust example I just gave you.
So, if it is not illegal, unethical or fraudulent for an attorney or broker to sneak in the back door… it isn’t for you,
either.
The most you’ve got to lose is the time you’ve invested and the money you put in the deal, of which brings me to
best practices when investing subject to.
It’s an ideal strategy for short term investing such as wholesaling and fixing and flipping. Go for it! Now, if your
subject to investment is going to be a long term hold type play, I recommend not investing any more in the deal
than you’re willing to lose. And here’s why…
If you give a motivated seller $50,000 down to take over his property subject to the existing financing and two
years down the road the interest rates make a big jump up, it’s very possible that lenders might start investigating
their lower interest loans. It’s not
likely, but it is possible. And in
the event that they do, they
“if your subject to investment
is going to be a long term hold type play,
I recommend not investing any more
in the deal than you’re willing to lose”
could accelerate the loan and
take the property back of which
you’d have to say goodbye to
your $50,000.
So, if it’s a short term strategy,
go for it! If it’s a long-term
strategy, just be careful of how
much you put in the deal
upfront.