A seller wanting 75k for his equity on a subject-to is not what low cash was supposed to mean.

Question

Worth sorting through from the lending side, so point out where the math is off. A seller owes about 214k on a loan at 3.1%, and the house would list somewhere near 290k. He wants 75k for his equity, which is basically the whole gap. If the buyer has to bring 75k to the table, it is not clear what the low rate is buying that a normal purchase with a big down payment would not. Everything written about these deals makes it sound like people pick them up for a few thousand and take over the payment. Is the equity number just negotiable, or do sellers in this position always want the full spread? And can the 75k be paid over time?

Rena Guide · Accepted Answer

The equity payment is simply what you agree to pay the seller for their ownership interest, and it has no fixed relationship to the appraised value minus the loan balance. That gap is the seller's opening ask. What they accept depends on what problem the sale is solving for them.

So the arithmetic that matters is: loan balance you're taking over, plus any arrears (missed payments, late fees, and the lender's reinstatement figure if they're behind), plus whatever you pay for equity, plus closing costs. Those closing costs are real even without a new loan, since you still want a title search, title insurance, an escrow or attorney closing depending on your state, and recording fees. Transfer taxes on the deed also vary a lot by state, and in some places they're a few hundred dollars while elsewhere they're a meaningful percentage of the price.

Where the low rate earns its keep is on a 214k balance at 3.1% versus financing 214k at today's rates. That difference shows up every single month for as long as you hold, and it's why some buyers will pay a seller more for equity than a retail buyer would offer, just spread over years instead of at closing.

One thing to line up early: whoever ends up holding the deed needs a plan for the day the lender notices the transfer and asks for payoff. Refinance or sell are the usual two, and you want to know which one you'd use on this specific house before you wire the seller anything.

samantha_ruiz · Answer

The number is negotiable and the payment form is negotiable separately, which is the part people miss. A seller who wants 75k cash and a seller who'll take 15k down plus a 60k note at 5% for eight years are asking for very different things from you. The reason sub2 sellers often take terms is that they're usually solving something other than price, a payment they can't make, a move they can't delay. If your guy has 75k of real equity and no pressure, he's probably better served listing it, and he'll figure that out.

aaron_fitz10 · Answer

That reaction is common the first time anyone pulls comps on these. The sellers with fat equity and no problem just sell normally.

nataliehsu · Answer

Question inside your question: if he carries the 60k as a note, that note is recorded against a house whose first mortgage is still in his name. Does that not just tell his lender the deed moved? I don't understand how the recording works here.

tonyv88 · Answer

Whatever you end up paying him, do not spend down to zero doing it. The thing that breaks people in these structures is a 4k plumbing repair in month two while a 1,400 mortgage payment is due on a loan that is not theirs. A late payment on a subject-to deal wrecks a stranger's credit, and that is how a lawsuit starts. Six months of PITI sitting untouched should come before the equity number matters at all.

A seller wanting 75k for his equity on a subject-to is not what low cash was supposed to mean.

5 replies