Good news for investors of single-family rentals: Market stability appears to be gaining steam, as RentRange’s Q4 2016 data shows a lessening percentage change between quarters while rent rates continue… more
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Are you thinking of investing in property? However, you do not have enough money to do so. Here is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better wager is to find a land that the owner has great interest in selling, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and thinking of using this strategy perhaps the owner would be happy to assist you! There are a few variations that may be used depending upon you and your owner. Do they need the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The simplest method is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will need to be approved by the initial lender to assume the mortgage. If you can’t get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make repayments while the property stays in the seller’s name.
You take over the original mortgage and create a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – 2 or 3 years. Rather than having the money sit in a bank they can be collecting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term draws to a close you should be able to refinance the cost, or you could sell. Unless you strike a real bad market the value of the house should have risen in that time.
A lot of mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are lots of financial lenders that would wish to make a deal. Financiers like real estate. The mortgage is mostly around 60-70% of the value of the property, so as long as they understand they get their money back in the value of the land 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 could still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the whole picture. It is better that seller and buyer may work hand in hand. If they can’t wait for a sale, you could still give them their asking price with a little versatility on their part.