Subject-To financing: how we acquire at 3–4% rates

Subject-To (or "Sub-To") is a real estate acquisition strategy where the buyer purchases a property while leaving the existing mortgage in place. The seller deeds the property to the buyer, who takes over payments on the original loan — without formally assuming it or refinancing.

Why this matters in 2026

In 2020 and 2021, millions of homeowners locked in 30-year fixed mortgage rates between 2.5% and 4.0%. In 2026, the prevailing 30-year fixed rate sits above 7%. That gap — 300 to 400 basis points — is enormous.

For a $250,000 mortgage:

• At 3.5%: $1,123/month payment
• At 7.0%: $1,663/month payment
• Difference: $540/month in debt service

A co-living operator who acquires a $300,000 property Subject-To (with a $220,000 existing mortgage at 3.8%) carries dramatically lower debt service than one financing the same acquisition at current rates. That difference flows directly to cash flow — and investor returns.

How the acquisition works

Subject-To transactions require the seller's cooperation. The seller must be willing to leave their mortgage in place — which means:

1. The buyer must give the seller a compelling reason (typically, a faster close and the ability to walk away from a property they can no longer manage)
2. The buyer must be credible — sellers are leaving their mortgage in their name
3. The deal must close through an attorney or title company that understands the structure

Common seller profiles for Subject-To: divorce situations, job relocations, inherited properties, pre-foreclosure, and landlords exiting the business.

The "due on sale" clause

Most mortgages contain a due-on-sale clause — a provision allowing the lender to call the loan due upon transfer of title. In practice, lenders rarely invoke this clause when payments are made on time.

The risk is real, not hypothetical. But it's manageable:

• Keep the loan current — missed payments are the #1 trigger
• Maintain hazard insurance with the lender as loss payee
• Work with a real estate attorney familiar with the structure

We disclose this risk clearly in our investment materials and structure deals to minimize it.

Subject-To in our portfolio

Our acquisition team targets Subject-To candidates with:

• Existing mortgage rates below 5%
• Remaining balance of 60–80% of current value (built-in equity)
• Sellers motivated by speed and simplicity over maximum price

When we combine a Subject-To acquisition with a co-living conversion, the result is a property generating $3,800–$4,800/month in gross revenue against $1,100–$1,400/month in debt service — a DSCR of 3.0× or higher before OpEx.

Seller Finance as a complement

Where Subject-To isn't available, we use Seller Finance — a structure where the seller acts as the lender, carrying back a note at negotiated terms. We typically target seller finance notes at 5–6% interest, 3–5 year balloon, interest-only. This preserves cash flow while we operate and improve the asset.

Both strategies serve the same goal: acquire at below-market cost of capital, operate at above-market revenue density.

Learn more about our capital structures →

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