What is Commercial Real Estate?
The term “commercial real estate” sounds like one big category, but commercial real estate is actually a way to describe several different types of property… more
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Are you thinking of investing in real estate? But you don’t have enough money to do this. In this article is a tip you can use as long as the property seller is willing to negotiate with you.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your very best gamble is to find a land that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with tenants.
Actually, if you are currently renting and thinking of using this approach perhaps your landlord would be happy to assist you! There are a few variations that may be used depending on you and your seller. Do they desire the market price or are they just desperate to get out of the monthly payments – maybe 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 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 make 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. Instead of having the money stay in a bank they can be getting a high interest over 2 or 3 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 a real 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 could still shy away there are a lot of financial lenders that would wish to make a deal. Financiers prefare property investing. The mortgage is mostly around 60-70% of the value of the land, so as long as they understand they get their money back in the value of the estate if you default, they don’t care what kind of income 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 see the complete picture. It is good that seller and buyer can work together. In the event that they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.