This article was originally published in Think Realty Magazine in the American Association of Private Lenders’ (AAPL)-sponsored “Investor Review” insert in the July/August 2017 issue.
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Are you contemplating investing in real estate? However you don’t have enough money to accomplish this. Right here is a tip you can use as long as the person selling the property is willing to negotiate with you.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your very best wager is to find a property that the owner has great interest in selling, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you maybe currently renting and considering using this approach perhaps your landlord would be glad to help you out! There are several variations that may be used depending on you and your vendor. Do they want the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The easiest way is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also try a ‘subject to’ assumption where you merely make obligations 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 – two or three 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 else you can sell. Unless you struck a genuine bad market the value of the house should have risen in that time.
A lot of mortgage lenders merely need to make a great investment. While your local bank could still be scared there are lots of financial lenders that would wish to make a deal. Financiers prefare property investing. The mortgage is mostly around 60-70% of the value of the land, so as long as they understand they get their money back in the value of the land if you default, they do not care what sort of income 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 complete picture. It is good that seller and buyer can work together. In the event they can’t wait for a sale, you could still give them their initial price with a little versatility on their part.