A Breakdown of the Viability of a Subject-to Transaction

We have talked a lot about how subject-to transactions work, and you can probably see that they are a great way in any economy to buy and sell houses – often at a great advantage to you, the buyer. However, we have not talked a lot about how to evaluate the properties themselves – particularly in these unusual real estate investing times. There are many things to factor in when you purchase a home subject-to, and just because you are getting the property “no-money” or “low-money” down and possibly substantially into the life of the loan does not always mean that buying is a good deal.

For starters, you need to examine the area in which you are buying carefully. Is it full of rental houses? Will yours just be one more in a large group of rentals should you decide to lease it out? How are the schools? Is the house far nicer or far inferior to the rest of the homes in the area? How are the homes in this area selling? Are there any resident “flights” going on right now? What indications do you have that this should be a nice, acceptable area in which to live or work (depending on the building) in the next decade? Are there any unusual zoning ordinances that make your building particularly attractive or unattractive?

With some notable exceptions, most real estate investors do not currently feel totally confident in the assumption that they will be able to flip properties in days or weeks as was popular in the 1990’s and early 2000’s. However, there are still a lot of investors buying for short term investment purposes, and selling fast generally to other investors who are in the property ownership game for the long haul. The answers to all of those questions will help you determine whether a property meets your specific needs in the short and long term. For example, if you buy a subject-to property in Detroit, then you will either need to sell it extremely low to another investor who is buying things up for pennies on the dollar (and you must factor in how low you might have to go to sell before you buy to determine what time frame will make this endeavor worth your while) or you will need to plan to hold the property for yourself for a fairly long time into the foreseeable future until the area returns to life. On the other hand, there are many neighborhoods in Atlanta where investors are buying distressed properties very cheap, then selling or renting them within a few months because those homes meet the specific parameters of where people want to live, how large a home people can currently afford and the types of properties lenders are still willing to finance.

Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.