Most investors are familiar and find comfort when it comes to financing a single-family home, but become overwhelmed and intimidated when the conversation turns to financing a multifamily property. In this article, I would like to describe the differences between a residential and commercial loan and outline the different types of commercial lenders. What exactly […]…
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Are you thinking of investing in property? But you do not have enough money to do this. Here is a tip you can use as long as the person selling the property is willing to negotiate along.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your better gamble is to locate a land that the owner has great interest in offering it, whether because of moving, divorce, or they are frustrated with the people renting the place.
Actually, if you are currently renting and considering using this approach perhaps your landlord would be happy to help you out! There are several variations that can be used depending on you and your seller. Do they want the market price or are they just desperate to get out from the monthly payments – perhaps facing foreclosure?
The easiest method is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could 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. 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 investment term.
When the term draws to a close you need to be able to refinance the cost, or perhaps you could sell. Unless you struck a genuine bad market the value of the house should have risen by then.
Most mortgage lenders merely want 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 do not care what kind of revenue you make. Complete the deal with a second mortgage done with the seller. If you default they can eventually foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can see the entire picture. It is better that seller and buyer may work together. In the event that they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.