This article was originally published in the July/August 2017 issue of Think Realty Magazine as part of the American Association of Private Lenders (AAPL)-sponsored “Investor Review”
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Are you contemplating investing in property? However you don’t have enough cash to do this. Right 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 every seller will be willing (or even understand) the concept outlined. Your best wager 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 technique perhaps your landlord would be glad to assist you! There are a few variations that can be used depending upon you and your owner. Do they want the market price or are they just desperate to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.
You take over the first mortgage and get 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. Instead of having the money stay in a bank they could 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 ceases you need to be able to refinance the cost, or else you can sell. Unless you strike an actual bad market the value of the property should have risen in that time.
Most mortgage lenders merely want to make a great investment. While your local bank may still be scared there are plenty of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is usually based on 60-70% of the value of the land, so as long as they understand they get their money back in the value of the property 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 still foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can see the whole 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 asking price with a little overall flexibility on their part.