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Are you contemplating investing in real estate? However, you don’t have enough cash to accomplish this. 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 interested (or even understand) the concept outlined. Your better wager is to find a property that the owner has great desire for offering it, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and thinking about using this strategy perhaps your landlord would be glad to assist you! There are a few variations that could be used depending upon you and your seller. Do they desire the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest method is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could also 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 – 2 or three 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 ceases you ought to be able to refinance the cost, or perhaps you can sell. Unless you strike a real bad market the value of the home should have risen in that time.
Most mortgage lenders merely need to make a good investment. While your local bank could still shy away there are plenty of financial lenders that would like to make a deal. Financiers like real estate. The mortgage is usually based on 60-70% of the value of the property, 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. Complete the deal with a second mortgage done with the seller. In case you default they could still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the complete picture. It is good that seller and buyer may work together. If they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.