Single-family homes are an asset to any investor—large or small. Of the investment properties available on the market, single-family homes often accrue the greatest appreciation rates and are most sought after by high quality tenants. In addition to holding lower upfront costs, single-family homes are often easier to secure financing for as they are considered […]…
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Are you contemplating investing in real estate? But you don’t have enough money to do so. In this article is a tip you may 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 guess is to locate a property that the owner has great desire for offering it, whether because of moving, a divorce settlement, or frustration with tenants.
Actually, if you maybe currently renting and thinking about using this technique perhaps the owner would be happy to assist you! There are some variations that can be used depending upon you and your owner. Do they need the market price or are they just eager to get out of the monthly payments – perhaps 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 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 second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 years. Instead of having the money sit down 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 ceases you ought to be able to refinance the cost, or else you could sell. Unless you hit an actual bad market the value of the house should have risen by then.
Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty of financial lenders that would want to make a deal. Financiers prefare real estate. 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 land if you default, they do not care what sort of revenue you make. Conclude the deal with a 2nd mortgage created with the seller. If you default they can still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can see the complete picture. It is better that seller and buyer may work together. If they can’t wait for a sale, you could still give them their asking price with a little overall flexibility on their part.