Sales and Purchase Contracts: Protect Yourself with This Clause

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  You probably know that putting contingencies in your Sales and Purchase contract throws up red flags to motivated sellers, and who wants to do that?  Not me. So how do you protect yourself without alarming the seller?  You do that by adding one specific clause to your sales and purchase contact. I always point […]

The post Sales and Purchase Contracts: Protect Yourself with This Clause appeared first on Louisville Gals Real Estate Blog.

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Are you thinking of investing in property? However you do not have enough money to accomplish this. In this article 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 interested (or even understand) the concept outlined. Your very best wager is to locate a property that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with the folks renting the property.

Actually, if you maybe currently renting and thinking of using this approach perhaps the owner would be happy to assist you! There are a few variations that could be used depending on you and your vendor. Do they need the market price or are they just desperate to get out of 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 original lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.

You take over the original mortgage and create a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time frame – two or three years. Rather than having the money sit in a bank they can be collecting a high interest over two or three years with the rest 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 can sell. Unless you strike a genuine bad market the value of the home should have risen in that time.

A lot of mortgage lenders merely need to make a great investment. While your local bank may still shy away there are lots of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is mostly 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 don’t 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 with the proceeds.

Now you can see the complete picture. It is better that seller and buyer may work together. In the event they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.

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