It’s been over 5 months since I shared my thoughts on the real estate crowdfunding business. I’ve alluded to this in previous write-ups (parts I, II, III, IV, V, VI, and VII can be seen here), but …
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Are you contemplating investing in real estate? But you do not have enough cash to do so. Here is a tip you can use as long as the person selling the property is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better guess is to locate a property that the owner has great interest in offering it, whether because of moving, divorce, or they are frustrated with the people renting the place.
Actually, if you maybe currently renting and considering using this technique perhaps the owner would be glad to assist you! There are several variations that could be used depending upon you and your vendor. Do they want the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you can’t get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make payments while the property stays in the seller’s name.
You take over the first mortgage and create a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 2 or three years. Rather than having the money sit in a bank they could be collecting a high interest over two or three years with the remainder due in full at the end of the term.
When the term ends you need to be able to refinance the cost, or else you could sell. Unless you struck a real bad market the value of the house should have risen by then.
Most mortgage lenders merely want to make a great investment. While your local bank could still be scared there are a lot of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is usually around 60-70% of the value of the land, so as long as they know they get their money back in the value of the estate if you default, they do not care what kind of revenue you make. Complete the deal with a second mortgage done with the seller. In case you default they can eventually foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can see the entire picture. It is better that seller and buyer may work hand in hand. In the event they can’t wait for a sale, you can still give them their initial price with a little versatility on their part.