Subject To And Lease Option Investments

What are they?

Subject To and Lease Options usually go hand in hand, but are completely separate real estate practices. These strategies are glorified buy and holds, with Subject To being the front end (buying) and Lease Options being the back end (leasing and sales). "Subject To" is short for "subject to the existing mortgage." It is a way to control a property by having the seller of the property continue to hold the financing in their name, but give the interest, benefits, and responsibility of the property to the investor. Lease/Options are two separate documents that are used to lease properties out to people who are willing to do more of the roles of an owner and thus receive an option to buy the property at a later date.

Subject To

Pros:

No need to go to a bank for financing
Ability to pick up low owner-occupied interest rates and lower monthly payments
Strong tax benefits
Long-term passive residual income

Cons:

Most deals don't have much equity in them
More complicated documents
Most sellers won't qualify because they are way over-leveraged, terms of their loan are not favorable, or they are not motivated enough to keep financing in their name.
Marketing Advice:

Market in areas where there are properties that have been on the market a long time and lots of houses listed.
Neighborhoods that have newer homes or areas where there is still building going on can be excellent areas to find these deals.
Show credibility with all sellers, but especially with these sellers in order for them to feel comfortable giving you the house but keeping their name on the loan. Joining the Better Business Bureau or local Chamber of Commerce can be great credibility builders. You can also never have enough testimonials from past sellers. Doing honest, ethical win/win deals will help with this more than anything.
Lease Option

Pros:

Ability to get chunks of cash with NROC (non-refundable option considerations)
Long-term wealth building ability
Less tenant management issues than regular rentals

Cons:

More additional forms and education required than regular leases
Tenants who are supposed to be doing repairs to property might neglect them and cause more severe problems
Marketing Advice:

Directional signs at busy intersections near property are very helpful.
A voicemail system to screen possible tenants is a huge time saver.
Large colorful signs with Take One boxes hanging on them are huge.
Use a lockbox instead of showing tenants the property yourself.