Subject-to deal math: does the payment cash flow?
By Josh MillerUpdated 5 min readA subject-to deal cash flows when the rent, after vacancy, repairs and management, is more than the full monthly payment on the seller's loan including taxes and insurance. Work it with the real payment from the servicer's statement, add the arrears and repairs to your cash in, and walk away if the monthly number only works with a perfect year.
Subject-to gets sold on the interest rate. A seller's 3% loan looks like free money next to the 30-year rate of 7.40% the week of October 8, 2026. But the rate is only one line in the math, and plenty of subject-to deals with great rates lose money every month.
Here's how to work one on paper before you make the offer. This is general information, not legal or tax advice. Use a real estate attorney in your state before you sign anything.
The monthly math
Use the real numbers: the payment from the latest mortgage statement, and rent from comparable rentals near the house, not a hopeful guess.
| Line | Monthly |
|---|---|
| Market rent | $1,800 |
| Less vacancy (1 month a year) | -$150 |
| Less repairs and upkeep (8% of rent) | -$144 |
| Less property management (10% of rent) | -$180 |
| Less loan payment: principal and interest | -$920 |
| Less escrow: property taxes and insurance | -$340 |
| What's left each month | $66 |
A 3% loan, and the deal makes $66 a month. One bad tenant and it's underwater for the year. That's the most common subject-to mistake: the rate looked great, so nobody ran the rest.
The cash in
Subject-to isn't zero money down. Add up what it takes to close:
- Arrears: missed payments, late fees and foreclosure costs, from the servicer's reinstatement quote. How to get it.
- Cash to the seller, if any.
- Closing costs: title, attorney, recording.
- Repairs to make it rentable.
- Reserves: several months of the full payment, in case the house sits empty.
Three checks before you offer
- Does it cash flow with a bad year in it? Rerun the monthly math with two months vacant and a big repair. If it goes negative, the margin is too thin.
- Will escrow go up? Taxes and insurance are re-figured each year, and the escrow payment follows. Insurance in many states has risen sharply. Assume the escrow line grows.
- What if the loan gets called? Could you refinance at today's rates and still break even, or sell for more than the balance? If neither, the due-on-sale clause is a real risk to you, not just the seller. What the clause allows.
When the math says no
If the rent doesn't cover the payment, the seller's low rate isn't enough. You can still help: a cash offer at a lower price, a seller-financed or wrap structure, or telling them honestly that listing it is their better option. Work out your own cost per deal before you decide how much a deal is worth chasing.
Questions investors ask
How do you calculate a subject-to deal?
Monthly: rent minus vacancy, repairs, management, and the full loan payment including escrow for taxes and insurance. One-time: arrears, closing costs, repairs and any cash to the seller. The monthly number tells you if it cash flows; the one-time number tells you what you need to buy it.
What payment should I use on a subject-to deal?
The full payment on the latest mortgage statement, including the escrow for taxes and insurance, not just principal and interest. Escrow gets re-figured every year, so leave room for it to go up.
Is a low interest rate enough to make subject-to worth it?
No. A 3% loan on a house that rents for less than the payment is still a loss every month. The rate matters only if the rent covers the whole payment and your costs.
What happens to the deal if the lender calls the loan?
You'd have to pay it off, usually by refinancing or selling. Run that case too: at today's rates, can you refinance and still cash flow, or sell for more than the balance?