In the ever-evolving world of real estate investment, flexibility and innovation often pave the way to success. One such innovative strategy that has gained traction among savvy investors is the “subject to” method. This approach allows investors to acquire properties by taking over existing mortgages, offering a unique blend of flexibility, speed, and opportunity. In this blog post, we delve into the insights shared by real estate expert William Tingle, as he discusses the nuances of creative financing in his conversation with Jay Conner.
What is a “Subject To” Deal?
A “subject to” deal is a real estate transaction where the buyer takes over the seller’s existing mortgage without formally assuming the loan. In this arrangement, the mortgage remains in the seller’s name, but the purchaser takes ownership of the property and continues making the payments. This strategy often bypasses the traditional financing process, offering an intriguing solution for both buyers and sellers facing unique situations.
The Mechanics Behind the Strategy
William Tingle, an experienced investor who has completed over 500 subject-to transactions, emphasizes the simplicity and legal foundation of this approach. These deals hinge on understanding and navigating the due-on-sale clause, a standard component of mortgages since the 1980s. This clause gives lenders the option to demand full repayment if the property is sold. However, as Tingle highlights, this option is rarely exercised as long as the payments are made on time and the loan remains in good standing.
The genius lies in the practicality — investors keep the payments current, ensuring the lender rarely has a reason to call the loan due. This method allows investors like Tingle to acquire properties even when traditional financing would be cumbersome or slow.
Why Sellers Opt for “Subject To” Deals
One might wonder why a seller would agree to leave their mortgage in someone else’s hands. Tingle clears up the misconception that only desperate sellers or those in financial distress consider this route. Many sellers choose the “subject to” method for its speed and convenience. Individuals facing relocation for personal or medical reasons might opt out of the lengthy selling process to avoid holding two mortgages. Others may have unique circumstances, like preserving their credit while avoiding foreclosure, that make this an appealing solution.
The Role of Private Money
Combining subject-to strategies with private money amplifies the financial flexibility available to investors. Jay Conner points out that creative financing doesn’t end with taking over mortgages; it can extend to raising private money for property improvements or bridging the gap between acquisition and resale. This approach unlocks additional avenues for generating cash flow and leveraging opportunities in real estate markets.
Building Trust in Creative Financing
Trust and transparency form the backbone of successful subject-to transactions. William Tingle underscores the importance of clear communication with sellers. By providing reassurance through testimonials and being upfront about potential risks, investors mitigate apprehensions and lay a solid foundation for collaboration. Tingle’s business thrives on its track record and positioning as a reliable problem-solver, helping people navigate the complex landscape of real estate with confidence.
The Bottom Line
Creative financing, particularly through subject-to deals, offers an innovative path in real estate investing. For those equipped with the knowledge and creativity to harness this strategy, it can lead to lucrative opportunities and significant cash flow. William Tingle and Jay Conner’s discussion highlights the potential within this method, encouraging investors to think outside the conventional realm and explore the advantages of creative financing.
As the real estate landscape continues to evolve, strategies like these will undoubtedly play a crucial role in shaping successful investment portfolios. Whether you’re an aspiring investor or an experienced real estate professional, understanding and utilizing the subject-to method can open doors to new opportunities and growth in your real estate journey.
10 Discussion Questions from this Episode:
- How did William Tingle’s career transition from the restaurant industry to real estate influence his approach to creative financing?
- What exactly is “Sub To” (subject to), and how does it differ from traditional real estate purchasing methods?
- Why might a seller be motivated to sell their property subject to the existing note, leaving the mortgage in their name?
- Discuss the potential risks and benefits for sellers who choose to sell their homes using the subject-to method. What assurances do real estate investors like William offer to mitigate these risks?
- What types of marketing strategies does William Tingle discuss in his publication “Extreme Marketing, The Ultimate Marketing Guidebook” for attracting motivated sellers?
- How does leveraging private money in conjunction with subject-to deals create a profitable and sustainable business model for real estate investors?
- William Tingle mentions a “12 house blueprint” model in the podcast. How does this model help create passive income for real estate investors?
- How crucial is transparency and honesty in building trust with potential sellers in subject to deals, according to William Tingle’s experiences?
- What are some legal considerations and challenges that investors might face when engaging in subject-to deals, especially with the due-on-sale clause?
- How can real estate investors balance the risks of subject-to financing with potential benefits, particularly in fluctuating market conditions?
Fun facts that were revealed in the episode:
- Real Estate Adventures Abroad: William Tingle retired to Belize in 2010 but didn’t stop his real estate adventures. Even while living internationally, he continues to buy 20-25 properties a year in the U.S., showing that real estate investing can truly be a global endeavor.
- Unexpected Seller Situations: Despite common perceptions, not all sellers using creative financing methods like “subject to” deals are in desperate situations. Some choose this route for unique personal reasons, such as relocating for medical care or preventing dual mortgage payments, so it’s not just about financial distress.
- Creating Cash Flow with Low Equity: Even properties with low equity can become profitable investments using creative financing strategies. William Tingle wraps existing low-interest mortgages, which often range between 2.5% to 3.5%, and transforms them into significant cash flow opportunities, highlighting the power of financial creativity in real estate.
Timestamps:
00:01 Raising Private Without Asking For It
06:15 Struggling with Mortgage Payments
07:20 Property Sale with Retained Mortgage
11:46 Swift Real Estate Solutions Offered
16:13 Cash Buying Criteria Explained
18:24 Profitable Low-Equity House Investments
22:40 The Rise of Due on Sale Clauses
26:09 Private Lending and Second Position Strategy
27:05 Creative Financing with Seller Partnerships
30:06 Successful Real Estate Strategy
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