This is a transcript of a previously-aired “Real Estate News” podcast broadcast by Kathy Fettke, co-CEO and founder of the Real Wealth Network.
The old American Dream maybe isn’t for… more
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Are you contemplating investing in property? However you don’t have enough money to do this. In this article is a tip you may 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 wager is to locate a property that the owner has great desire for offering it, whether because of moving, divorce, or they are frustrated with tenants.
Actually, if you maybe currently renting and thinking of using this approach perhaps your landlord would be glad to help you out! There are some variations that could be used depending upon you and your owner. Do they need the market price or are they just desperate to get out of the monthly payments – perhaps facing foreclosure?
The simplest method is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to presume the mortgage. If you can’t get approved for an assumable mortgage you may also 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 second 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. Instead of having the money sit in a bank they can be getting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ends you need to be able to refinance the cost, or else you could sell. Unless you struck an actual bad market the value of the home should have risen by then.
Most mortgage lenders merely need to make a good investment. While your local bank could still be scared there are plenty of financial lenders that would want to make a deal. Financiers like real estate. The mortgage is mostly around 60-70% of the value of the property, so as long as they understand they get their money back in the value of the property if you default, they don’t care what kind of income 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 off the existing mortgage with the proceeds.
Now you can observe the whole picture. It is good that seller and buyer may work together. If they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.