Real Estate Investing 101: Creative Use of Subject-To, Land Trusts, and Rehab-Only Loans to Fund Your First Flip
Let’s be real: if you're a first-time house flipper, access to capital is often the biggest roadblock standing between you and your first successful deal.
Banks won’t touch distressed properties. Hard money lenders want large upfront reserves. Private lenders prefer borrowers with experience.
It can feel like an iron wall with no door.
But what if I told you there’s a side entrance?
There’s a combination of strategies that lets new investors sidestep the usual lending gauntlet. It doesn’t require perfect credit, huge cash reserves, or even a loan in your name. The method? A Subject-To acquisition, held in a Land Trust, funded by a rehab-only loan.
Let’s walk through what these tools are, how they work together, and exactly what they cost in a real-world scenario.
Understanding “Subject-To” Transactions
When you buy a property “subject to the existing financing,” you're essentially agreeing to make the seller’s mortgage payments—but the actual loan remains in the seller’s name.
In other words:
You get the deed
They keep the debt
The bank continues receiving payments just like before, but now you’re the one paying them.
No mortgage application. No new loan. No credit pull.
Why Would a Seller Ever Say Yes?
Because life happens.
Maybe they’re behind on payments. Maybe they’re upside down emotionally. Maybe they inherited a property they don’t want to manage. These sellers need out, and quickly.
A Subject-To deal can offer them:
Immediate relief from financial strain
A way to preserve their credit
A smoother exit without traditional closing hurdles
And for you as the buyer, it means:
You take control of the property fast
You avoid the massive down payment typically required
You inherit any favorable terms on the existing mortgage (like a 4.25% interest rate)
What’s the Catch?
The biggest risk in these deals is the "due-on-sale clause" buried in most mortgage agreements. This clause allows (though doesn’t require) the lender to call the full balance of the loan due if the property is transferred.
Now, here’s the good news: this clause is almost never enforced, especially if payments are being made on time. But cautious investors often choose to lower the visibility of the transfer—by using a Land Trust.
The Role of Land Trusts
A Land Trust is a legal entity (typically a revocable trust) that holds title to real estate. Instead of titling the house in your personal name, you title it in the name of something like:
"123 Main Street Land Trust"
That way, public records show the trust as the owner—not you.
The seller then signs over their beneficial interest in the trust to you, giving you full control without exposing your name.
Why use a Land Trust in a Subject-To deal?
It adds a layer of privacy and legal separation
It can reduce the likelihood of lender scrutiny
It gives your deal structure a cleaner, more professional look
Let’s Look at the Numbers
Here’s a realistic scenario using this strategy.
PROPERTY SNAPSHOT
Neighborhood: Working-class area with good turnover
Current Value: $230,000
Loan Balance: $180,000 @ 4.25%
Monthly PITI: $1,275
Seller Delinquency: 2 payments behind ($2,550)
RENOVATION NEEDS
Roof, HVAC tune-up, cosmetic interior upgrades
Estimated Rehab: $35,000
After-Repair Value (ARV): $265,000
Projected Sale Price: $260,000
COST ESTIMATES
Expense Category & Approximate Cost
Mortgage catch-up $2,550
Closing/title/notary $2,500
Legal fees (Land Trust) $750–$1,000
Rehab loan points (2%) $700
Rehab loan interest (4 mos @12%) $1,400
Holding mortgage (4 months) $5,100
Utilities, insurance, etc. $800
Selling fees (6% commission) $15,600
Total Investment~$29,650
Keep in mind these are estimates (high ones at that). All of these fees and expenses can be lower if you find fight professionals and methods who will save you money.
PROFIT SNAPSHOT
Sales Price: $260,000
Payoff to existing mortgage: $180,000
Total costs: ~$29,6500
Estimated Net Profit: ~$50,350
Not bad for a project that didn’t require a new mortgage, a giant down payment, or any personal financing beyond the up-front repair costs and legal fees. Do this two or three times and you’ll be ready to take on bigger projects with bigger profits!
Make it stand out
Here is an infographic showing the Sub2 and Land Trust processes in simple clear steps.
Funding the Fix: Rehab-Only Loans
Once you have control of the property (via deed or trust), you can borrow just the money needed to renovate. These are called rehab-only loans.
Unlike traditional fix-and-flip loans, these don’t include the purchase price—just the construction capital. They’re easier to qualify for if you already own the property, especially through a Subject-To deal.
Typical terms:
Rates: 10%–14% interest
Points: 1–3% of loan amount
Loan term: 3 to 12 months
Lien position: Often first or second
Draws are how funds are released: instead of a lump sum, the lender sends money in stages, reimbursing you as each phase of work is verified complete. This keeps the lender protected and ensures you stay on schedule.
Why It’s a Smart Launch Strategy
Here’s why this approach is especially good for new investors:
You’re not applying for a full mortgage
You avoid putting up 20–30% of a purchase price
You leverage someone else’s low-interest loan
You preserve cash and reduce your upfront exposure
You build experience and profit with less risk
Most importantly: you get in the game.
You stop waiting for the perfect credit score, the big bank account, or the magical down payment to appear. You act—and you learn.
Why Start Your REI Journey This Way?
Getting started in real estate investing is tough—but this method gives you a real edge right out of the gate. Here’s why this strategy makes such a powerful first move:
1. It keeps your first loan costs way down.
Your first loan in real estate will almost always be the most expensive money you ever borrow. So why borrow big? A rehab-only loan on a Subject-To deal lets you start small, borrow less, and limit your exposure. That’s not just safer—it’s smarter.
👉 Read more about how lenders think in this article.
2. It helps you build a real relationship with a lender.
Private and hard money lenders work on trust. If you successfully complete two or three small rehab deals with the same lender—and pay them back on time—they’ll remember that. Over time, you’ll get better rates, higher LTVs, and faster approvals.
👉 Again, this is covered in-depth here. What Private & Hard Money Lenders Really Want
3. You get in the game with lower up-front costs.
Subject-To deals don’t require traditional down payments. Land Trusts are cheap to set up. And rehab-only loans don’t require you to fund the purchase. That combo means you can launch your investing career without waiting for a massive chunk of capital to fall from the sky.
4. You’ll learn advanced skills early—while most newbies are still stuck.
Most new investors never touch Subject-To deals or Land Trusts until much later—if ever. But by starting here, you gain a massive knowledge advantage. You’ll learn deal structuring, legal tools, creative finance, and lender management all in your first flip.
5. It sets you up to protect your assets from day one.
Using a Land Trust from the beginning gives you privacy, separation from your personal name, and a cleaner asset protection structure. When used consistently, this can offer:
Anonymity on public record
Easier estate planning
Insulation from frivolous lawsuits
A seamless way to assign or transfer interest down the road
In short: this isn’t just a creative way to get your first deal—it’s a smart way to build your entire investing foundation.
Final Thoughts
If traditional financing has kept you stuck on the sidelines, it’s time to rethink the game. The combination of Subject-To ownership, Land Trust privacy, and rehab-only financing gives you a powerful toolkit to acquire, renovate, and flip properties without playing by the bank’s rules.
This isn’t theory. It’s real. It’s repeatable. And it’s working right now for investors all across the country.
Want help making your first creative deal happen?
Reach out. I’ll show you how to structure it, how to fund it, and how to win with it.
