This is a guest post from Debbie Vornholt of Common Sense Landlording. Landlord Mistakes Today’s article is on landlord mistakes, and I have a story for you. It’s the first of the month, and I had a tenant that I just love named Bob come in to pay his rent. Bob is a […]
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Are you contemplating investing in property? But you do not have enough money to do 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 interested (or even understand) the concept outlined. Your better wager is to locate a property that the owner has great interest in selling, whether because they are moving, divorce, or they are frustrated with tenants.
Actually, if you maybe currently renting and considering using this technique perhaps your landlord would be glad to assist you! There are a few variations that can be used depending on you and your vendor. Do they desire the market price or are they just desperate to get out of the monthly payments – perhaps facing foreclosure?
The simplest method is to take over their mortgage payments – 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 repayments while the property stays 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 frame – two or 3 years. Rather than having the money stay in a bank they could be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ceases you should be able to refinance the cost, or else you can sell. Unless you hit a genuine bad market the value of the house should have risen in that time.
A lot of mortgage lenders merely want to make a great investment. While your local bank may still be lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers prefare 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 do not care what kind of money you make. Complete the deal with a 2nd mortgage created with the seller. If you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can see the complete picture. It is better that seller and buyer may work together. If they can’t wait for a sale, you can still give them their initial price with a little versatility on their part.