Woman: Svenja Gudell
Place in the Industry
Svenja Gudell has a very big job. As Zillow’s chief economist, she not only leads a team of more than… more
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Are you contemplating investing in real estate? But you don’t have enough cash to do so. In this article is a tip you may use as long as the property seller is willing to negotiate with you.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your very best wager is to find a land that the owner has great interest in offering it, 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 happy to assist you! There are a few variations that can be used depending upon you and your seller. Do they want the market price or are they just eager 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 need to be approved by the initial lender to assume the mortgage. If you cannot 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 first mortgage and create a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 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 should be able to refinance the cost, or perhaps you can sell. Unless you hit a genuine bad market the value of the property should have risen by then.
Most mortgage lenders merely want to make a good investment. While your local bank may still be lacking confidence there are lots of financial lenders that would wish to make a deal. Financiers prefare property investing. The mortgage is mostly based on 60-70% of the value of the land, so as long as they understand they get their money back in the value of the estate if you default, they don’t care what kind of income you make. Conclude the deal with a second mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can observe the whole picture. It is better that seller and buyer may work hand in hand. In the event that they can’t wait for a sale, you could still give them their asking price with a little overall flexibility on their part.