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The Cowboy Sales Process
The Cowboy Sales Process

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Subject 2

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INTRODUCTION: The Power of Creative Financing

Welcome to a deep dive into one of the most powerful creative financing strategies in real estate: "Subject 2." This guide is engineered to cut through the noise and deliver a battle-hardened framework for acquiring properties with little to no capital by taking over a seller's existing mortgage. We will deconstruct the mechanics of the deal, explore the psychology of both the seller and the investor, and lay out a strategic battle plan for execution. Forget theory; this is your field manual.
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MODULE 1: Deconstructing the Deal - The 3 Pillars of a Real Estate Transaction

To master "Subject 2," you must first understand the fundamental components of any mortgaged property transaction. Every deal is built on three legal instruments. They are separate, but they work together.
The Deed:
This is your proof of ownership. Think of it as the title to a car. When you execute a "Subject 2" deal, the seller signs the deed over to you. You become the legal owner of the property. The homeowner is the one who holds this.
The Mortgage (or Deed of Trust):
his is the leverage device the bank uses. It's a public record that physically attaches the debt to the property. This instrument gives the lender the right to foreclose if the loan isn't paid. The property cannot be sold with a clear title until this debt is satisfied.
The Promissory Note (The "Note"):
This is the promise to pay. It's the original homeowner's personal guarantee and agreement for the debt, outlining the interest rate and payment terms. In a "Subject 2" deal, the Promissory Note remains in the original seller's name. You are not assuming the loan; you are simply taking ownership of the property subject 2 the existing financing terms laid out in this note.
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The key to this entire strategy is separating the Deed from the Note. You take the Deed (ownership), but the seller's name stays on the Note (the debt obligation). You now have the responsibility to make the payments on that note.
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MODULE 2: The "Subject 2" Explained - The Core Concept

At its core, a "Subject 2" transaction is brutally simple:
You are taking title (ownership) of a property by having the seller deed it to you, while the existing mortgage stays in place in the seller's name. You agree to make the monthly mortgage payments on their behalf.
That’s it. You are not going to a bank, you are not qualifying for a loan, and you are not creating new financing. You are stepping in and taking over the terms of a deal that already exists.
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MODULE 3: The Win-Win Scenario - Why Sellers and Investors Say 'Yes'

This strategy only works because it solves a critical problem for a specific type of seller, creating an incredible opportunity for the investor.

The Seller's Motivation:

A seller doesn't agree to a "Subject 2" deal because it's their first choice; they agree because it is often their only solution.
A Necessary Escape Route
Little to No Equity:
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Avoid Foreclosure:
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Save Their Credit:
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Tax Avoidance:
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The Investor's Edge: Your Unfair Advantage

For the investor, the benefits are immense and allow you to operate outside the traditional, capital-intensive rules of real estate.
No Bank Qualifying: Forget tax returns, credit checks, and financial scrutiny. Your ability to find a good deal is your qualification.
Little Capital Required: Instead of a 20-30% down payment, your entry cost is often a small fee to the seller and closing costs. This allows for infinite scalability.
Acquire Low-Interest Loans: You can take over loans from years past with interest rates at 2%, 3%, or 4%, which is an incredible advantage in a higher-rate market.
Do Deals Others Can't: While other investors are fighting over high-equity deals that fit the traditional model, you can solve problems and acquire properties that nobody else knows what to do with.
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MODULE 4: The "Subject 2" Battle Plan - A Step-by-Step Guide

Execution is everything. Follow this proven process to find and structure these deals correctly.
Run Your Wholesale Business. Do Not Change It! Your wholesaling operation is your deal-finding machine. Do not stop wholesaling to hunt exclusively for "Subject 2" deals. The leads you generate for wholesaling will naturally uncover "Subject 2" opportunities. Wholesaling produces the cash flow needed to fund your "Subject 2" portfolio.
Identify the "Only Way Out" Scenario. During your underwriting and negotiation, you must determine that a "Subject 2" is the only viable solution for the seller. If they have enough equity to sell traditionally, let them. This strategy is for sellers who are truly stuck.
Underwrite EVERYTHING. You must perform ruthless due diligence on two separate components:
The Property: Get the After Repair Value (ARV), a solid repair estimate, and local rental rates.
The Mortgage: You need the exact monthly payment (PITI - Principal, Interest, Tax, Insurance), the outstanding loan balance, the interest rate, and critically, if they are behind on any payments.
Confirm the Seller is 100% on Board. There can be zero hesitation. You will need their cooperation for insurance changes and potentially to access loan information. If they are not fully committed, walk away. Hesitation is a red flag that will cost you time and money.
Target Minimal Repairs (Under $5,000). For your first several deals, do not take on major renovation projects. The goal is to acquire cash-flowing assets, not construction jobs. Properties that need only cosmetic work are ideal and provide the most exit strategies.
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MODULE 5: The Triple Payday System

This is where the strategy becomes truly lucrative. A properly structured "Subject 2" deal pays you at three distinct points in time.
How to Profit at Every Stage

Payday #1: The Upfront (Assignment Fee)

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Payday #2: The Middle (Monthly Cash Flow)

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Payday #3: The End (The Back-End Sale)

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Total Profit on One Deal:

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MODULE 6: Critical Field Intelligence & Final Warnings

LAWYER UP: This is non-negotiable. Have a qualified real estate attorney review your contracts and handle the deed transfer. The cost is minimal compared to the risk of doing it wrong.
THIS IS NOT A BEGINNER STRATEGY: Master wholesaling first. Build your knowledge, confidence, and capital base. Use "Subject 2" as a powerful addition to your arsenal, not your starting point.
A COOPERATIVE SELLER IS MANDATORY: If the seller is difficult, uncooperative, or expresses regret, do not proceed. The deal's success hinges on a smooth, transparent process where the seller feels they are being helped, not taken advantage of. Your reputation depends on it.
Need more deals in your pipeline? Prexium gives you the quality leads to close faster. Start today 👉
The Cowboy Marketer
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