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Are you contemplating investing in real estate? However, you do not have enough cash to do so. Right here is a tip you may use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your better guess is to find a property that the owner has great interest in selling, whether because they are moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and thinking of using this approach perhaps your landlord would be happy to assist you! There are some variations that may be used depending upon you and your seller. Do they need the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The easiest way is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the original lender to presume 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 obligations while the property remains in the seller’s name.
You take over the first 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 period – two or three years. Instead of having the money sit 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 investment term.
When the term ceases you need to 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 in that time.
A lot of mortgage lenders merely need to make a good 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 understand they get their money back in the value of the land if you default, they don’t care what kind of income you make. Complete the deal with a second mortgage done with the seller. In case you default they can 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 together. In the event they can’t wait for a sale, you may still give them their asking price with a little overall flexibility on their part.