When do Investors Use Break Even Analysis? Apartment investments are the perfect real estate investment example for using break even analysis to evaluate a deal. Most income properties or cash flow investments you find on Loopnet.com will give you enough information in the pro forma form to figure out if a property is performing as […]…
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Are you thinking of investing in real estate? But you don’t have enough money to do so. In this article is a tip you are able to 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 very best guess is to find a property that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this approach perhaps the owner would be glad to help you out! There are a few variations that could be used depending on you and your owner. Do they want the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.
You take over the original mortgage and get a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 2 or 3 years. Rather than having the money sit in a bank they can 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 ceases 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 in that time.
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 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 sort of money you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they can eventually foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can observe the whole picture. It is good 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.