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Are you contemplating investing in real estate? But you don’t have enough cash to do so. Here is a tip you are able to use as long as the person selling the property is willing to negotiate along.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your best guess is to find a property that the owner has great desire for selling, whether because they are moving, a divorce settlement, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and considering using this strategy perhaps your landlord would be glad to help you out! There are a few variations that may be used depending upon you and your owner. Do they want the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?
The simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to presume the mortgage. If you cannot get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make obligations while the property remains in the seller’s name.
You take over the original mortgage and get a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – two or 3 years. Instead of having the money sit in a bank they can be collecting a high interest over two or three years with the remainder due in full at the end of the investment term.
When the term ends you need to be able to refinance the cost, or else you can 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 lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers prefare real estate. The mortgage is usually based on 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. Conclude the deal with a second mortgage created with the seller. If you default they can still foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can observe the entire picture. It is good that seller and buyer may work hand in hand. If they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.