This is a transcript of a previously-aired segment of “Self-Directed Investor Talk,” a radio show dealing with self-directed IRA strategy hosted by Bryan Ellis.
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Are you contemplating investing in property? However you don’t have enough money to do 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 every seller will be willing (or even understand) the concept outlined. Your very best guess is to find a land that the owner has great interest in offering it, whether because they are moving, a divorce settlement, or frustration with the folks renting the property.
Actually, if you maybe currently renting and considering using this approach perhaps the owner would be happy to help you out! There are several variations that can be used depending on you and your owner. Do they desire the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to assume the mortgage. If you can’t get approved for an assumable mortgage you may as well 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 make a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – two or 3 years. Rather than having the money sit in a bank they could be getting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term draws to a close you ought to be able to refinance the cost, or else you could sell. Unless you hit a genuine bad market the value of the property should have risen in that time.
Most mortgage lenders merely need to make a great investment. While your local bank could 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 know they get their money back in the value of the estate if you default, they don’t care what sort of income you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they could still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can observe the entire picture. It is good that seller and buyer may work hand in hand. In the event that they can’t wait for a sale, you can still give them their asking price with a little overall flexibility on their part.