Contracting properties is the point where your hard work starts to pay off. It’s where agreements are finalized, trust is cemented, and both parties step into a long-term arrangement. One of the most effective strategies in real estate investing is the subject-to (Sub2) deal. These contracts allow you to take control of a property while leaving the original mortgage in place—a unique tool in your investing arsenal.
In this guide, we’ll break down how to walk a seller through a Sub2 agreement, step by step, ensuring clarity and trust throughout the process. Let’s dive in.
What Is a Sub2 Contract?
A subject-to (Sub2) agreement means purchasing a property while the existing mortgage remains in the seller’s name. You agree to take on the payments moving forward. This method can be a win-win: sellers unload financial stress, and investors gain control of the property with minimal upfront investment.
It’s essential to handle these deals with care. The paperwork for a Sub2 contract involves both property purchase and financing terms, creating a more complex agreement than a standard deal. Clear communication is critical to ensure everyone is aligned.
Making Sellers Comfortable
Sellers must feel confident in every part of the transaction. Any confusion or hesitation can derail the process. The goal during the presentation isn’t just to explain—it’s to eliminate doubts before they even arise.
Set the tone by inviting questions from the start. If a seller feels comfortable asking, they’re less likely to harbor hidden concerns. Keep the conversation casual but professional, and let them know they’re in full control of their decision.
When you ask, “Do you have any questions?” aim for a genuine “no.” If their response seems hesitant or incomplete, ask open-ended questions, such as “What are your thoughts about this section?” This helps uncover and resolve any lingering doubts.
Ethics and Transparency Are Key
Real estate investors have an ethical duty to be transparent and honest. Always encourage sellers to read the entire contract, and never rush them. Building trust begins with showing that you have nothing to hide.
In a Sub2 deal, you’re entering a long-term relationship with the seller. Misunderstandings today can turn into major problems months or years down the road. By taking time to fully explain everything, you pave the way for a smoother partnership.
Repetition in contracts isn’t redundancy—it’s necessary for clarity. Key details are often included in multiple sections to ensure they’re fully understood. Walking sellers through these repeated elements shows your commitment to their comprehension.
Preparing for the Contract Discussion
Every successful contract presentation starts with this simple question: “Do you have any last questions before we begin?” Starting with this phrase creates a sense of partnership and ensures sellers are ready to proceed.
Next, introduce the document itself. Acknowledge that the paperwork is lengthy, but reassure your seller by breaking it into manageable chunks. In Texas, the first nine pages of many contracts use standardized state-promulgated forms that all homebuyers and sellers complete. Familiarity with these forms sets sellers at ease.
Explain the significance of each section. For example, the addendum section outlines the Sub2-specific terms, including owner financing. This combination of purchase and financing paperwork is similar to what buyers complete when purchasing homes traditionally.
Breaking Down Key Contract Sections
Start by validating the accuracy of the buyer and seller information. Point out where their names appear and confirm their spelling. Verify the property’s legal description and the address listed. This attention to detail builds trust and reassurance.
Sales Price and Payment Breakdown
Explain how the sales price is structured. For instance, remind them of any back payments (e.g., $10,000) required to catch the loan up to date. Illustrating the final purchase price in simple terms helps ensure alignment and clarity.
Earnest Money Deposit
Point out the earnest money deposit. For Sub2 deals, this amount is often minimal, such as $100, and it’s deposited with a title company or law firm. Reiterate where it’s going and why.
Title Policies
Most standard contracts require sellers to provide title insurance for buyers, but Sub2 agreements are different. Because the original title policy remains, explain that you’ll perform a title search but won’t ask them to pay for a new policy. This move saves them money and shows goodwill.
Survey (If Available)
If the seller has a property survey—often included in their original closing documents—mention that providing it is helpful but not mandatory. Some other helpful documents include the original note and deed of trust. Offer to assist them in locating these documents.
Customizing Contracts for Wholesale Deals
If you’re wholesaling the property, the contract should include “and/or assigns” in the buyer information section. This enables you to assign the deal to another buyer and collect a wholesale fee.
When wholesaling, honesty is non-negotiable. It’s crucial to explain to sellers that you may assign the agreement to another investor. Lay out the process clearly to avoid surprises later.
Addressing Contract Sections That Don’t Apply
Some sections of state contracts might not apply to your seller’s situation. For example, clauses regarding tide waters or annexation might seem irrelevant for properties in areas like Dallas. Set expectations by briefly explaining why these sections are included but aren’t relevant.
Walking Through and Signing the Contract
Presenting contracts effectively requires a deliberate, step-by-step approach. Walk sellers through each page of the agreement, pausing at key points to explain essential details. After completing each section, have them initial at the bottom. This ensures they understand everything before moving on.
Your demeanor is crucial here—stay calm, patient, and open to questions. Reinforce their option to read more of the document if they wish and provide time for them to do so without pressure.
Final Preparations for Closing
Before wrapping up, double-check that all sections have been signed and initialed properly. Review the agreed-upon terms one final time to confirm everyone is on the same page. Closing documents are the next major step after contract signing, and your professionalism during this phase sets the tone for the rest of the process.
Conclusion
Presenting and executing a Sub2 contract requires patience, transparency, and attention to detail. By walking sellers through the process at their pace, you build trust and ensure long-term success. Always prioritize their understanding and comfort—it’s not just about closing the deal; it’s about creating a partnership.
When sellers feel informed and confident, they’re more likely to proceed smoothly and with trust. Your ability to guide them through each piece of the process reinforces your credibility as an investor and establishes a foundation for future opportunities.
