Subject-To Financing Calculator: How to Run the Numbers on a Sub-2 Deal

Subject-to financing sounds deceptively simple: take over the seller's mortgage, get the deed, make the payments. You skip the bank, inherit a rate from 2021, and get a house with better terms than any lender will offer you today.

Not quite. A subject-to deal has inputs a conventional purchase doesn't, and most beginner calculators skip them. That's how investors end up owning a house where the existing loan balance is underwater relative to value — or where the monthly payment is $400 higher than they modeled because they forgot the escrow account was three months behind.

Here's how to actually run the numbers.

The Two Numbers That Aren't on the MLS

Every sub-2 deal starts with two numbers the listing won't show you:

1. The existing loan's actual payoff balance. Not the original loan amount. Not what Zillow estimates. The payoff statement from the servicer, which includes principal, accrued interest, and any escrow shortfall. Get this in writing before you commit to any deal terms.

2. The full PITI payment. Principal + Interest + Taxes + Insurance. The P&I comes from the note. But taxes and insurance live in an escrow account that may be behind — especially if the seller stopped paying or let the insurance lapse. A $1,400/month P&I can become $1,900/month PITI when you factor in a property tax bill that jumped 20% and insurance that needs to be re-bound from scratch.

If you don't have both numbers verified, you're not underwriting. You're guessing.

The Core Calculator Inputs

A complete subject-to calculator needs eight inputs. Most free tools give you four.

Input	What it is	Where to get it
Purchase price	Cash you're paying above loan balance	Negotiation
Existing loan balance	Verified payoff, not estimate	Servicer payoff statement
Existing interest rate	Rate on the original note	Note itself or servicer
Remaining loan term	Months left on amortization	Servicer or amortization schedule
Current PITI payment	Full monthly debt service + escrow	Most recent mortgage statement
Escrow balance	How far behind (or ahead) escrow is	Servicer escrow analysis letter
Market rent	Comped against 3 nearby actuals	Active listings + recent leases
Vacancy + expense rate	Your honest operating assumption	Market data + your track record

The last two are identical to any buy-and-hold deal. The first six are unique to sub-2 and the ones that bite people.

Running the Cash Flow Model

Here's a real deal structure (numbers rounded, structure exact):

Property: 3/2 in a mid-sized Sunbelt market
ARV: $285,000
Existing loan balance (verified payoff): $198,000
Existing rate: 3.25%, 30-year fixed, originated 2021
Remaining term: 294 months
Current PITI: $1,440/month
Cash to seller: $8,500 above their payoff

Investor's out-of-pocket at close:

• Seller payment: $8,500
• Closing costs (title, attorney): ~$3,200
• Deferred maintenance: $4,800
• Total all-in: ~$16,500

Monthly model:

• Market rent: $1,950/month
• Vacancy (8%): –$156
• Effective gross income: $1,794
• Operating expenses (taxes, insurance, mgmt, repairs, capex reserve): –$780
• NOI: $1,014
• Existing PITI: –$1,440
• Monthly cash flow: –$426

That deal is negative. It fails cash-flow underwriting even with a 3.25% rate.

Why? Because the PITI swallowed the NOI. The existing debt service was set when rents in this market were $1,600. They've moved up, but not enough to rescue a payment that included PMI and a topped-up escrow cushion. A low rate does not equal good cash flow. The payment has to fit the rent roll.

If you want a baseline for reading NOI and expense ratios before adding the sub-2 layer, the Real Estate Underwriting 101 guide covers the foundation.

When the Math Works — and When It Doesn't

Sub-2 deals cash-flow well under specific conditions:

When it works:

• Seller's PITI is ≤ 40% of market rent. A $1,200 payment on a $3,000/month rent unit leaves real margin.
• The existing loan is small relative to value. Seller has substantial equity and a genuine motivation to exit (relocation, divorce, estate situation).
• You're in a rent-growth market. Even if Year 1 cash flow is thin, the payment is fixed and rent compounds.
• You're holding long. Sub-2 returns improve sharply at Year 5–7 when rents have grown 15–20% but the payment hasn't moved.

When it doesn't work:

• The existing loan is FHA or VA. Both have active enforcement mechanisms and servicers that flag due-on-sale triggers. The risk profile changes completely.
• PITI > 50% of gross rent. One bad month wipes out a quarter of cash flow.
• The seller isn't genuinely motivated. They need equity now, not a drawn-out creative structure.
• Your exit is a quick flip. You lose the rate advantage the moment you resell, and you've added legal complexity for zero holding-period gain.

If you're unsure whether a deal makes the cut, post it on /share-a-deal — other investors will spot the structural gaps before you commit capital.

The Equity Position: What You Actually Own

Most beginner guides skip this calculation. Your equity on day one is not ARV minus loan balance:

Equity = ARV − Existing Loan Balance − Your Cash In − Due-On-Sale Risk Buffer

That last term is real. If the servicer calls the note due — which they legally can under the due-on-sale clause, even if they rarely do — you need to refinance immediately at whatever rates exist at that moment. In today's market, that's a 7%+ conventional loan. Your equity cushion needs to survive that scenario.

For the example above:

• ARV: $285,000
• Existing loan balance: $198,000
• Cash in: $16,500
• Due-on-sale risk buffer (10% of ARV): $28,500
• Net equity position: ~$42,000

That's a real equity cushion worth protecting. If the number comes out thin — say, under $25,000 on a $250K ARV property — the deal needs to be renegotiated or passed. You don't have room to absorb a forced refi.

The Exit Math

Sub-2 investors have three exits. Know which one you're targeting before you close:

1. Hold and cash flow. Works when the payment-to-rent ratio is right and you're in a stable or growing market. The base case. Every year that passes, your payment stays fixed while rent drifts up.

2. Sell the property subject-to. Pass the existing loan and deed to the next buyer, capturing your equity spread. Requires a motivated buyer who understands the structure and a title company that will close it. Legal in most states; verify with your attorney for your jurisdiction.

3. Refinance out. You end the sub-2 structure and replace it with a new loan. Do this when rates drop meaningfully below the existing rate, when you need to pull equity, or when due-on-sale pressure forces your hand. The refinance payoff must pencil against your cash-in basis.

Year 5 hold scenario on the example property:

• Loan balance at Month 60 (5 years of amortization at 3.25% on 294 remaining months): ~$183,800
• Projected ARV at 3% annual appreciation: ~$330,000
• Gross equity at sale: $330K – $183.8K – 3% closing costs ≈ $136,000

That's approximately an 8× equity multiple on a $16,500 cash-in over 5 years. But only if the cash flow is sustainable, or you have the stomach to hold through a negative year while rents catch up to the payment.

The One Ratio That Filters in 30 Seconds

Before you build any model, run the payment-to-rent ratio:

PTR = Existing PITI ÷ Market Rent

• PTR < 35%: Strong. Worth building out the full calculator.
• PTR 35–50%: Marginal. Cash-flow depends on expense discipline and realistic vacancy.
• PTR > 50%: Skip it. The rate advantage doesn't compensate for the margin compression.

This is not a substitute for full underwriting — it's a 30-second filter that keeps you from spending two hours on deals that can't work arithmetically.

For deals that clear the PTR filter, dre1mery.com handles sub-2 deal structure natively: enter the existing loan terms, and the analyzer generates the full amortization schedule with cash-flow projections updating in real time as you adjust rent and expense assumptions.

If you're evaluating deals in a market you don't know well, finding an experienced local sub-2 investor to sanity-check your rent comps is worth the conversation. And before you layer on the creative structure, make sure the base rental math holds — how to underwrite a rental property covers the five metrics every buy-and-hold deal has to clear.

Subject-to financing is one of the most effective tools in a creative investor's toolkit. The existing loan rate is an asset. The existing loan payment is a constraint. Model both, know your equity cushion, and you'll make cleaner decisions on every sub-2 deal that crosses your desk.