When most landlords get started in real estate investing, they learn quickly that their new career will require multiple skill sets. If you are like most of my clients, you… more
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Are you contemplating investing in real estate? However, you do not have enough cash to do so. In this article 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 interested (or even understand) the concept outlined. Your best wager is to locate a land that the owner has great interest in selling, whether because they are moving, a divorce settlement, or they are frustrated with tenants.
Actually, if you maybe currently renting and thinking about using this technique perhaps your landlord would be glad to help you out! There are some variations that may be used depending upon 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 simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to presume the mortgage. If you can’t get approved for an assumable mortgage you may also try a ‘subject to’ assumption where you merely make obligations while the property stays in the seller’s name.
You take over the first mortgage and get 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 3 years. Rather than having the money sit in a bank they can be getting 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 else you can sell. Unless you strike a real bad market the value of the property should have risen by then.
Most mortgage lenders merely want to make a good investment. While your local bank could still be lacking confidence there are lots of financial lenders that would like to make a deal. Financiers like real estate. The mortgage is usually based on 60-70% of the value of the property, so as long as they know they get their money back in the value of the land if you default, they do not care what kind of money you make. Conclude the deal with a second mortgage created 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 observe the entire picture. It is better that seller and buyer may work together. If they can’t wait for a sale, you can still give them their asking price with a little overall flexibility on their part.