EDITOR’S NOTE: This excerpt is a continuation from “Debunking the 13 Insurance Myths for the Real Estate Investor,” which we began last issue. We’re exploring three common misperceptions about personal… more
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Are you thinking of investing in property? However, you do not have enough money to do this. 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 all sellers will be interested (or even understand) the concept outlined. Your best gamble is to find a land that the owner has great interest in selling, whether because of moving, a divorce settlement, or frustration with the people renting the place.
Actually, if you are currently renting and thinking about using this approach perhaps your landlord would be glad to help you out! There are a few variations that could be used depending upon you and your owner. Do they need the market price or are they just desperate to get out from the monthly payments – perhaps facing foreclosure?
The simplest method is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could 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 first 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 frame – two or three years. Instead of having the money sit down in a bank they can 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 draws to a close you should be able to refinance the cost, or you could sell. Unless you strike an actual bad market the value of the house should have risen by then.
A lot of mortgage lenders merely need to make a great investment. While your local bank could still be scared there are lots of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is mostly 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 estate if you default, they don’t care what sort of money you make. Complete the deal with a 2nd mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can observe the complete picture. It is good that seller and buyer can work together. In the event they can’t wait for a sale, you could still give them their asking price with a little versatility on their part.