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.
Rob Barney, President of DHLC… more
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Are you contemplating investing in property? However you don’t have enough cash to accomplish this. Right here 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 willing (or even understand) the concept outlined. Your very best gamble is to find a land that the owner has great interest in selling, whether because of moving, divorce, or they are frustrated with the people renting the place.
Actually, if you maybe currently renting and thinking about 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 owner. 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 consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the first 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 payments 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 period – 2 or three years. Instead of having the money stay in a bank they could be collecting a high interest over 2 or 3 years with the rest due in full at the end of the term.
When the term draws to a close you should be able to refinance the cost, or you can sell. Unless you struck a real bad market the value of the property should have risen in that time.
Most mortgage lenders merely need to make a good investment. While your local bank could still be scared there are lots 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 land, so as long as they know they get their money back in the value of the property if you default, they do not care what sort of revenue you make. Conclude the deal with a second mortgage done with the seller. If you default they can eventually foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the entire picture. It is good that seller and buyer may work together. In the event they can’t wait for a sale, you may still give them their initial price with a little overall flexibility on their part.