Commercial Creative Financing Examples Using Second Carry Mortgage

Source: http://www.reiclub.com/realestateblog/commercial-creative-financing-examples-using-second-carry-mortgage/

Have you ever heard of these terms or these phrases before when you’re looking on LoopNet or online listings or getting things from brokers or even sellers? If you’ve heard this before: “seller may carry a small second to help get the deal done”. How about “seller may hold a second” or “owner may carry […]…

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Are you thinking of investing in real estate? However you don’t have enough cash 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 every seller will be interested (or even understand) the concept outlined. Your best guess is to locate a land that the owner has great interest in offering it, whether because of moving, a divorce settlement, or frustration with the people renting the place.

Actually, if you are currently renting and thinking of using this approach perhaps your landlord would be happy to help you out! There are a few variations that can be used depending upon you and your owner. Do they desire the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?

The simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the original 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 payments while the property remains in the seller’s name.

You take over the first mortgage and get a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 years. Instead of having the money stay in a bank they could be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the term.

When the term ends you should be able to refinance the cost, or perhaps you could sell. Unless you strike an actual bad market the value of the home should have risen by then.

Most mortgage lenders merely need to make a great investment. While your local bank could still shy away there are plenty 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 property if you default, they don’t care what sort of money you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they could eventually foreclose on the property and sell it, paying down the existing mortgage with the proceeds.

Now you can observe the complete picture. It is better that seller and buyer can work together. In the event they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.

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