how to SUB2

hello all looking to pick a brain here

i am interested in knowing alot more about doing sub2 deals i would like to know the basics of the entire process.

how to structure

how they close

and how would i go about flipping a deal as such to someone with a significant downpayment for the transaction. I mean i am not just gonna sign a deal with any john doe with a downpayment right.

how would you go about qualifying a buyer in a deal like this if they most likely have bad credit and cannot obtain financing of their own.

would you try and find them financing through hard money lenders as such or what.

i need to know how to write up a like this so i may expand my horizon in the investing world

I am totally new to this concept and would like to learn more before diving into these type deals .

all insight is much appreciated as always.

I think you’re confusing “buying sub2” with “selling sub2.”

As an investor/buyer you can take title subject to the existing loans when it’s impossible to get a loan for whatever reason. As an investor you are agreeing to maintain the seller’s existing loan until it’s refinanced.

As an investor/seller, you’re not going to want to transfer title to an end-user/buyer until he refinances the loan first. This is often accomplished by selling on an installment contract (Contract For Deed, etc.). In this case, the buyer’s deed is held in escrow (or by you) until the buyer pays off the loan, and then you have the buyer’s deed recorded. It’s really that simple.

So, the questions you’re asking are more appropriate to ask when buying a property (taking title subject to the existing, underlying loan(s), not selling.

Search my posts here for the last two months and you find a lot of information about sub2 mechanics.

Sub2 has been a lifeblood for my investing. Good luck!


thanks for your response i have seen some of your responses in the past just by reading different topics, my hat goes off to you my friend you are truly a great teacher.

now here is another aspect of my question yes i understand i will be taking the property subject 2 the existing loans but the real question is how would i go about qualifying an end buyer like i stated do i just plop any ol person with some cash in the house or is there some kinda backround checks to perform so i know that i would be making a good decision.

also can youi clarify a installment for deed contract that seems like a rental agreement would that be like a lease option deal .


How heavily you screen your buyers depends on how much cash they’ve got to work with. Buyers with lots of cash are much more committed to the deal, as you might expect, and thus we’re less picky about their problem(s). However, we advertise “no credit check,” and “no qualifying” when we sell. We get the buyers who know they can’t qualify, but also know they’ll need some money to overcome their problems. Frankly we also advertise for the down we want (depending on the situation). This makes sure we get the credit challenged customers who have the cash we want, to call us. Otherwise, we get every Tom, Dick and Harry with $3,000 to their name calling us about our new 3/2/2 with granite, RV parking and a built-in BBQ, because hope springs eternal.

Frankly, our marketing is directed at buyers with crappy credit, because they expect to put up their mother-in-law and ten grand to buy anything in this market.

To be clear, we’re not talking about financing dead beats. We’re talking about doing business with sellers that have solvable credit issues.

The assumption we’re making here is that the homes we’re selling are NICE. If we start off with newer homes, the market expands considerably. The wives will want the new kitchens and baths and pride of ownership…the husband’s will want to please their wives…

So, our qualifying process basically involves asking the buyers how much cash they’ve got to work with (if we haven’t advertised a minimum down). If they’ve got 10% to put down, we then hold a mirror to the buyer’s lips and say, “breathe.” If the mirror fogs up, they qualify.

We’ve got other tools we use to get the buyers out of our houses if and when they default. However, we sell that information!!! :biggrin

As far as contracts go, we would just use a Contract for Deed, specific for use in our state. USLEGALFORMS is the resource we use for deals outside California.

This is NOT like a lease agreement or lease/option agreement. Those are different animals altogether.

The installment contract (Contract for Deed, Agreement for Deed, etc) is like a very long escrow instruction to put it simply. It outlines whom the buyer makes payments to, for how long, and for how much, who pays for insurance, taxes, etc, and finally when the deed will be recorded (when the buyer pays us off …in 2, 3, 10 years???).

Meantime, the buyer can still deduct mortgage interest paid to us, and depreciate the improvements on his income taxes. It’s all as if he had title.

BTW, in CA, a Contract for Deed is considered an equitable transfer of interest and effectively makes the legal assumption that there has been a transfer of title, regardless of whether the deed has been held, unrecorded in escrow, or not. This means that if our buyer defaults and won’t move, and we don’t have our act together on how to handle that, we’ll have to judicially foreclose. This can take months if we don’t know what we’re doing to avoid that mess. It’s something to consider.

Hope that helps.

HI Have been gone for awhile but am back , As to sub-2 deals what are your thoughts t o the many people are saying that they are not legal and you are stealling the real estate ?

You have been gone a while. If you search this forum, you’ll find your answer. This was debated ad nauseum a couple of times here.

It’s not illegal. It’s not “a way to steal property.” Stealing would include forging contracts and signatures, like the guy who’s in jail as we speak for doing that very thing in Orange County, CA.

Meanwhile, “sub2” can be the only way a seller with no equity can sell his house (get out from underneath the debt), and buy something elsewhere and/or cheaper.

It’s a viable and valuable solution to overcoming financing roadblocks, and is also a highly profitable financing strategy for those investors who add this tool to their arsenal of investing strategies like I have.

BTW, if “Subject To” were illegal, I’m certain it wouldn’t be categorized on this forum as a special area of interest. Otherwise, maybe they would include “Pot Farms” as a real estate category on this board. Just saying.


I’ll go one further with you Jay, if Subject To was illegal then it wouldn’t be on line 503 of the HUD 1. :shocked

You bested me!!! How come I didn’t think to say that? LOL

I knew there was something I could add to my script about that. “It’s right on the HUD1 statement. Looky!”