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.
Property tax is one of the costs… more
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Are you thinking of investing in real estate? However you do not have enough money to do so. In this article is a tip you can use as long as the person selling the property is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your best gamble is to find a land that the owner has great desire for selling, whether because they are moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and considering using this approach perhaps your landlord would be glad to help you out! There are a few variations that can be used depending upon you and your owner. Do they need the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original lender to presume the mortgage. If you cannot 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 original 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 period – two or three years. Instead of having the money sit down in a bank they can be collecting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term ends you need to be able to refinance the cost, or perhaps you could sell. Unless you strike a genuine bad market the value of the property should have risen by then.
A lot of mortgage lenders merely need to make a good investment. While your local bank may still shy away there are plenty of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is usually around 60-70% of the value of the land, so as long as they know 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 done with the seller. In case you default they can still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the entire picture. It is better that seller and buyer can work hand in hand. In the event they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.