Subject To Real Estate 101


Subject to real estate deals represent an alternative form of financing that the majority of buyers and sellers are unaware of. Nonetheless, a subject to real estate contract remains a viable—and oftentimes preferred—source of funding for savvy real estate investors. Simply offering one more way to finance a deal can greatly place the odds of closing a deal in an investor’s favor, which is why it is in everyone’s best interest to at least learn about this particular strategy.

What Is Subject To Real Estate?

Subject to real estate transactions represent an alternative form of financing that doesn’t rely on traditional sources of funding. Otherwise known as owner financing or seller financing, subject to proposals replace institutional, third-party lenders with the owner of the property. In doing so, the owner steps in and plays the role of the lender, hence the moniker “subject to.” Subject to real estate is entirely contingent on an existing loan and the current owner’s ability and willingness to propose additional guidelines.

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Owner financing

Subject To Real Estate Investing

Subject to real estate investing is just one of many options investors are given to buy or sell a home. However, instead of enlisting the services of a bank or private money lender, subject to transactions are funded by the home’s current owner. The owner, in this situation, will lend the buyer the money for the purchase. After that, the loan and terms must be mutually agreed upon by each party. Subsequently, both parties will be expected to sign a promissory note that states three important indicators: An agreed upon interest rate, repayment schedule, and default consequences. Investors selling the home will want to make sure they negotiate favorable interest rates. Buyers, however, will need to do their best to negotiate lower interest rates.

Sellers usually offer the buyer a Grant or Quitclaim Deed in exchange for some type of consideration (i.e. money, a note, or other assets). The buyer is then expected to prove their interest in the home by putting down earnest money. Once everything is in order, and each party has agreed to terms, the borrower will essentially take over the payments of the existing mortgage. That’s an important distinction to make, as the seller will remain responsible for the original loan until all obligations have been met. The original terms of the note will stay the same, including the name on the loan it was originated for. Instead of the buyer making payments to the original loan, however, they will make them to the seller, who then proceeds to pay down the original loan. As a result, the original loan terms are still in play, and must be factored into the equation.

Subject to real estate investing isn’t the most common form of financing, but it does award investors with something very important: an additional means of financing a property. If for nothing else, subject to real estate investing isn’t the only form of financing made available to today’s investors, but rather an additional means of closing a deal. You see, real estate investing is a numbers game; the more ways an investor knows how to fund a deal, the more likely they are to acquire an asset. It is quite common to find subject to deals being carried out in markets where mortgages are harder to obtain or rates are rising. Therefore, understanding how to exercising a subject to real estate investing strategy gives investors an advantage over anyone who isn’t quite familiar with all the ways to fund a deal.

Real estate investors may use the subject to strategy to either buy or sell a home. Since subject to deals remove the bank from the equation terms may be more flexible, which leaves room for both buyers and sellers to benefit. Sellers, for example, may lend the money to the buyer and charge a higher interest rate. Buyers with poor credit, on the other hand, may be able to use this strategy to sidestep traditional bank loan requirements and secure the funds to buy an asset directly from the seller; not only that, but they also might be able to negotiate better terms and rates. All things considered, the benefits for each party are entirely contingent on the agreed upon terms. Therefore, any investor looking to use a subject to real estate strategy needs to familiarize themselves with the art of negotiation.

Is Subject To Real Estate Right For You?

In order to determine if a subject to contract is right for your current situation, you must first determine what side of the transaction you are on: buying or selling. As it turns out, a properly formulated subject to contract can benefit anyone on either side of the deal. Buyers who can’t find access to funding, for example, may not have any other purchase options at their disposal. In some cases, subject to real estate contracts may be the buyers only means of obtaining a home. Sellers, on the other hand, may use subject to contracts to increase the number of potential buyers for their properties.

Remember, the terms of a subject to contract are almost entirely negotiable (as long as they meet the requirements of the loan that’s already in place), so the benefits for each party are entirely dependent on the resulting terms. For a better idea of how each side may benefit, take a minute to weigh the pros and cons for each participant.

Subject To Real Estate For Buyers

Buyers stand to bent from a subject to sale if they can negotiate favorable terms, but there are also several risks they need to look out for. Here’s a list of the most common pros and cons for buyers participating in a subject to sale:


  • Subject to contracts help buyers receive the appropriate funds in markets where mortgage loans are harder to get.

  • The contracts of most subject to loans are more negotiable than their institutionalized counterparts, which may help less-qualified buyers receive approval from the seller.

  • Subject to contracts have been known to accelerate the closing process in the absence of a bank.

  • Subject to real estate contracts may concede with lower closing costs.

  • Down payments are negotiable, and a lot more flexible and manageable.


  • Buyers should expect higher interest rates because of the added risk sellers are taking on.

  • Not every seller can carry out a subject to contract. The owner of the home either needs to own the home outright (the owner must have 100% equity in the home and owe no more on the mortgage) or the lender needs to agree to the deal.

  • Buyers unfamiliar with negotiations may not be able to negotiate the best terms possible and run the risk of being taken advantage of buy sellers.

Subject To Real Estate For Sellers

Sellers stand to bent from a subject to transaction if they can negotiate favorable terms, but there are also several risks they need to look out for. Here’s a list of the most common pros and cons for sellers participating in a subject to sale:


  • Subject to loans may increase the pool of potential buyers who qualify to buy a home in markets where mortgages are hard to come by.

  • Subject to contract terms are highly negotiable, and may lean in favor of sellers who know how to navigate the process.

  • Sellers may negotiate favorable interest rate terms and capitalize on both the sale of the property and subsequent, recurring interest payments.

  • Carrying costs may be minimized when a proper subject to strategy is implemented.

  • Listing a subject to property will distinguish it from other listings, and perhaps even attract more buyers.

  • The chances of receiving a home’s full asking price are increased when subject to financing is introduced into the equation.


  • Subject to deals are risky for the seller, as it is their name that is still on the original loan. Failure on behalf of the new buyer to make payments will ultimately hurt the seller.

  • Using a subject to contract means the seller won’t be able to immediately turn around and use the proceeds from their sale to buy a new home.

Getting A Subject To Real Estate Contract

Getting a subject to real estate contract is as simple as proposing one. Either side, for that matter, can suggest implementing a subject to contract. However, there are a few significant caveats: For starters, the owner of the home must own their property free and clear. The current owner can’t maintain an equity position in the portly that is any less than 100%. If the owner doesn’t own the home free and clear, there’s still a chance, but the bank must agree to the deal. If the bank is ok with the subject to deal, and there is no ‘due on sale’ clause, the only thing left to do is decide on terms both parties are happy with.

Finding Subject To Real Estate Properties

Finding subject to real estate may be as simple as looking at local listing, as many homeowners willing to follow through with the strategy are also likely to advertise as much. In fact, it’s quite common for investors to announce their position on subject to properties in the listings themselves. That said, subject to properties are a lot less common to come across than traditional sales. Since most people don’t even know what they are, it’s a lot harder to come across them in a home listing. Therefore, buyers may need to suggest the proposal at each offer they submit. If for nothing else, some sellers may not even realize it’s an option till it’s on the table.


Subject to real estate deals are not nearly as common as their traditional counterparts, nor are the majority of buyers and sellers even aware of their existence. Through no fault of their own, most homeowners aren’t even aware that subject to contracts are an option awarded to those with a 100% equity position in their homes. Nonetheless, the fact remains: subject to real estate deals are a viable financing option for a lot of people, and real estate investors who know how to navigate them will have an advantage in the marketplace.

Key Takeaways

  • Subject to deals represent yet another way for real estate investors to finance an acquisition.

  • In order for subject to investing to take place, the owner must own the property free and clear, or the bank must agree to let the deal go through.

  • A subject to deal is no different from seller financing.