This is a transcript of a previously-aired segment of “Self-Directed Investor Talk,” a radio show dealing with self-directed IRA strategy hosted by Bryan Ellis.
Listen up, you self-employed people. If… more
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Are you contemplating investing in real estate? However, you don’t have enough cash to do so. Here is a tip you are able to 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 best gamble is to find a land that the owner has great desire for offering it, whether because they are moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and considering using this technique perhaps the owner would be glad to assist you! There are a few variations that may 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 – maybe facing foreclosure?
The simplest way is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the initial 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 repayments while the property remains in the seller’s name.
You take over the first mortgage and create a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or three years. Rather than having the money sit down in a bank they could be collecting a high interest over two or three 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 strike an actual bad market the value of the house should have risen by then.
Most mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are plenty of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is mostly 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 revenue you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the entire 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 initial price with a little overall flexibility on their part.