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 thinking of investing in real estate? However, you don’t have enough money to do this. Here is a tip you are able to 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 better gamble is to find a land that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with tenants.
Actually, if you maybe currently renting and considering using this approach perhaps the owner would be glad to assist you! There are a few variations that could be used depending upon you and your seller. Do they desire the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way 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 could also 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 make a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 years. Rather than having the money sit in a bank they can be collecting a high interest over two or three 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 you can sell. Unless you hit a genuine bad market the value of the house should have risen by then.
A lot of mortgage lenders merely need to make a good investment. While your local bank may still be scared there are a lot of financial lenders that would like 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 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. Conclude 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 down the existing mortgage in the proceeds.
Now you can see the complete picture. It is good that seller and buyer may work hand in hand. In the event they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.