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Are you contemplating investing in real estate? But you don’t have enough cash to do so. Right here is a tip you can use as long as the person selling the property is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your very best gamble is to locate a property that the owner has great interest in offering it, whether because they are moving, divorce, or frustration with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this technique perhaps the owner would be happy to help you out! There are several variations that may be used depending on you and your seller. Do they need the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the initial lender to presume 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 repayments while the property remains in the seller’s name.
You take over the original mortgage and make a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or three years. Instead of having the money sit in a bank they could be collecting a high interest over two or three years with the rest due in full at the end of the term.
When the term ceases you need to be able to refinance the cost, or you can sell. Unless you strike an actual bad market the value of the property should have risen by then.
Most mortgage lenders merely need to make a good investment. While your local bank could still shy away there are plenty of financial lenders that would want to make a deal. Financiers like real estate. The mortgage is usually around 60-70% of the value of the property, so as long as they know they get their money back in the value of the land if you default, they don’t care what sort of money you make. Conclude the deal with a second mortgage created with the seller. If you default they could eventually foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can see the complete picture. It is good that seller and buyer can work together. If they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.