If you are about to have an investment property appraised, be prepared to feel a little let down. According to the National Quicken Loans Home Price Perception Index, homeowners and… more
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Are you contemplating investing in real estate? However you don’t have enough money to accomplish this. Here is a tip you may use as long as the person selling the property is willing to negotiate with you.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your better wager is to find a land that the owner has great desire for selling, whether because of moving, divorce, or they are frustrated with tenants.
Actually, if you are currently renting and thinking of using this approach perhaps your landlord would be happy to help you out! There are several variations that could be used depending on you and your seller. Do they desire the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will need to be approved by the original 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 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 frame – two or three years. Rather than having the money sit in a bank they can be getting a high interest over 2 or 3 years with the rest due in full at the end of the term.
When the term draws to a close you need to be able to refinance the cost, or else you can sell. Unless you hit an actual 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 want 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 property if you default, they do not care what sort of revenue you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they could still foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can see the entire picture. It is good that seller and buyer can work together. In the event they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.