The key to success in real estate investing (and business) isn’t simply finding a competitive advantage, it’s having a sustainable advantage that others are unable to replicate. Warren Buffet popularized the term economic moat, which refers to a “business’s …
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Are you contemplating investing in property? However, you don’t have enough money to do so. In this article 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 all sellers will be interested (or even understand) the concept outlined. Your best guess is to find a property that the owner has great desire for offering it, whether because of moving, divorce, or they are frustrated with tenants.
Actually, if you are currently renting and thinking about using this approach perhaps your landlord would be glad to help you out! There are some variations that may be used depending on you and your seller. Do they need the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The simplest method is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will need to be approved by the initial lender to assume 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 repayments 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 – two or three years. Instead of having the money sit down 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 struck a real 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 could still be lacking confidence there are plenty of financial lenders that would want to make a deal. Financiers prefare property investing. The mortgage is usually based on 60-70% of the value of the property, so as long as they understand they get their money back in the value of the estate 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 eventually 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 they can’t wait for a sale, you may still give them their asking price with a little overall flexibility on their part.