If you’re a full-time real estate investor, you probably have some properties reserved to fund your retirement. However, if you’re a regular investor trying to diversify your portfolio through real estate investments, you may find it difficult to fund the purchase of a property. What is the best way to gain real estate exposure without additional […]…
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Are you contemplating investing in property? However, you don’t have enough cash to do this. In this article is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your very best wager is to find a land that the owner has great desire for selling, whether because of moving, divorce, or frustration with tenants.
Actually, if you are currently renting and thinking of using this strategy perhaps your landlord would be happy to help you out! There are some variations that can be used depending on you and your vendor. Do they need the market price or are they just desperate to get out from the monthly payments – perhaps facing foreclosure?
The easiest method is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have 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 remains in the seller’s name.
You take over the first mortgage and create a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 2 or three years. Instead of having the money sit in a bank they could 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 need to be able to refinance the cost, or perhaps you could sell. Unless you struck an actual bad market the value of the property should have risen by then.
A lot of mortgage lenders merely need to make a great investment. While your local bank may still be lacking confidence there are lots of financial lenders that would want to make a deal. Financiers like property investing. 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 don’t care what kind of revenue you make. Complete the deal with a second mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can observe the complete picture. It is better that seller and buyer may work together. If they can’t wait for a sale, you may still give them their asking price with a little overall flexibility on their part.