The Science of Flipping - The Difference Of Subject To's and Agreement For Deed

Episode Date: December 9, 2020

The Difference Of Subject To's and Agreement For Deed

What is up, everybody? What is up? This is Justin Colby, your host of the Science Flipping Podcast, and we are back with another episode. Now, if you listened to our last episode, I talked to you about subject to deals, which is a very big topic right now. It's the hot topic, and I wanted to go into a little known difference, which is an agreement for sale or a land contract or a contract for deed. The names are slightly interchangeable depending upon what state you're actually in, but there is a difference between a subject to and an agreement for sale slash land contract slash contract to deed. Moving forward on this podcast, I'm just going to call it an agreement for sale. So the major difference between a subject to an agreement for sale is you actually don't take title to the property in an agreement for sale. When you do a subject to, which is named subject to after the process of you buying a home subject to the existing loan.

In a subject two, you are actually still taking title of that property. In agreement for sale, you are not. So what are the pros and cons in this? Because in my opinion, unless you are looking to keep that property for a long-term buy and hold play, I really favor the agreement for sale over the subject to for one main reason. Security, safety, less risky. Meaning, a subject to, you're taking title. Well, an agreement for sale, you're never taking title. As I mentioned on the last episode, if you want to go back, I would go re-listen to the last episode. Subject two, you take title, which could ignite a due on sales clause from the bank.

Now, it is very rare. It very, very, very seldomly happens, but they do have the right to trigger the due on sale clause. In an agreement for sale, because you're not taking title, they don't have that right. No sale of property, the warranty deed is not in your name. So it doesn't trigger the due on sales clause. Both of these, you can actually assign as a wholesaler. Both of them you can flip and both of them you can keep as a buy and hold. But especially if you are a wholesaler,

I like an agreement for sale, a much better practice than a subject to. All of the other fundamentals are the same. You go in with a purchase contract. If you're a wholesaler, you would have either an addendum or within the purchase contract, you would line item the actual terms that you are adopting with the seller. And then you would actually wholesale that off to an end buyer, which gives me another reason why I like this. And buyers like the fact that they would have a investment property

subject to the existing loan. However, they don't own it yet. In which case, if something happens to them, the returns aren't there, et cetera, they are not at risk. As a buyer, the buyer is not at risk. If the market turns down, you don't have a property in your name that you now have to deal with because once you stop paying the mortgage in a subject to, it'll trigger the due on sales clause, which is a bummer for the actual previous owner who actually sold it over to you. And now they're dealing with foreclosure proceedings. So it protects the seller. It protects the buyer.

It tends to make it an easier wholesale property, especially if you're not keeping it long term. And it's a great way to very quickly fix the issue that a buyer, or I'm sorry, a seller might be having and why they want to sell the property, which is they may no longer be able to pay for their mortgage. They may need to move immediately. A traditional sale just won't work for them, et cetera. They have a really big rehab problem and they they aren't able to take care of that uh whatever the case may be right and usually in those scenarios both scenarios both the subject to an agreement for sale usually the seller's in some level of need financially to get rid of the home and this is all different than seller financing in the traditional method where the seller actually creates a note for you.

And in further podcasts and future podcasts, I'll be going over that. and contract the agreement for sale and assign it because you simply aren't having to go back and have all these authorizations and so forth to take over a property, a note. Now, if you're going to be paying for that loan that the seller has, and you're going to use that, then yes, as protection, I would want to go in there and I would want to be an authorized member of that. Well, I want them to give me authorization to speak to the bank about the loan. And so I can make sure I'm protecting myself that the mortgage is being paid. And obviously, I would want to be using a third party servicing company to do that. To be able to service the loan so I can pay them to make sure that loans being paid. So to make sure, you know, the homeowner themselves is not just pocketing the money and letting it go to foreclosure.

Right. If you guys are liking this, obviously I have plenty more over on my YouTube channel. I'd really suggest you going over to YouTube, just go to YouTube, look up Justin Colby. There are a lot of videos, all things, real estate, investing business and entrepreneurship over on YouTube. Also, if you want to go do a deeper dive on seller financing on creative financing, and you want to speak to me personally, go to the science flipping.com right there, there's a bunch of free material as well as I also have an opportunity for you guys to jump on a quick call with me, a 15, 20-minute strategy session power call. And I'm happy to do that and to do a deeper dive. Creative financing

is a way that we will get 20 plus deals a year, every single year, because it is allowing someone to use the terms to get a number that they want, right? So I'm just coming up with an idea that can help the seller move or do whatever they want to do with the home. And I'm just being more creative, right? So a lot of times these individuals don't have a lot of equity. There's not a lot of equity for me to negotiate against. Otherwise it becomes a short sale, but they really want to sell their home. So I fit the bill by doing an agreement for sale. And again, as a wholesaler with walking into a property that doesn't have a lot of equity, I like to be able to assign these deals and you assign it in the exact same method you

would. I simply do an assignment contract with the buyer. They have to see their original purchase contract to see all the terms, obviously. But with that said, it makes being a wholesaler really, really easy in agreement for sale rather than a subject to. And then the process is the exact same. As I mentioned, if you are likely gonna keep this in your portfolio and you wanted to go ahead and just do a subject to anyways, because you wanna go in and make repairs

and do all these things, I have no problem with that again. As long as you understand and you disclose to the seller that the banks do have a trigger due on sales clause, however unlikely it may be, that the banks do have a trigger due on sales clause. However unlikely it may be, they do have the opportunity if they would like to trigger that due on sales clause. As long as both parties are good, I'm good with you doing subject to.

Subject to's have been around for a very long time. They are a very good way to buy homes if you are gonna flip them and or keep them as a portfolio. However, with that said, if you're going to wholesale it or flip it, I'd still go with an agreement for sale. That's just my opinion. It's not as cool and popular out on that Instagram world, but it does the exact same fundamentals. It removes the risk and it can help you guys. So again, hopefully this helps you guys. If you have any questions, go over to the science flipping.com. Happy to help there

and check out these YouTube videos, dude. I'm doing one a day. And, uh, I know that those, those are going to move your needle as well. So go over to youtube.com forward slash Justin Colby, check it out, smash those like buttons for me, the YouTube gods like that. Um, and then, you know, subscribe and pay attention and it'll help you out. Talk to you guys on the next episode of the Science Living podcast. Peace.