One of my favorite podcasts is ‘Invest Like the Best’ hosted by Patrick O’Shaughnessy. He has a mix if incredible guests from all ends of the finance world (venture capital, authors, researchers, portfolio managers), and recently did an …
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Are you thinking of investing in real estate? However you don’t have enough money to accomplish this. Here is a tip you can 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 wager is to locate a land that the owner has great interest in offering it, whether because they are moving, divorce, or frustration with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this strategy perhaps your landlord would be glad to assist you! 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 from the monthly payments – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make payments while the property stays 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 period – 2 or three years. Instead of having the money sit down 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 draws to a close you should be able to refinance the cost, or perhaps you could sell. Unless you hit a real bad market the value of the house should have risen in that time.
Most mortgage lenders merely want to make a great investment. While your local bank may still be scared there are lots of financial lenders that would want to make a deal. Financiers prefare real estate. 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 second mortgage created with the seller. If you default they can eventually foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can observe the entire picture. It is better that seller and buyer may 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.