In this five-part series, we will discuss the basic ins-and-outs of the buy and hold exit strategy. Part I will define what the buy and hold strategy is, and how… more
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Are you contemplating investing in property? However you don’t have enough money to accomplish this. Right here is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your very best guess is to find a property that the owner has great interest in offering it, whether because they are moving, divorce, or they are frustrated with tenants.
Actually, if you maybe currently renting and considering using this technique perhaps your landlord would be happy to help you out! There are several variations that may be used depending upon you and your vendor. Do they need the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest method is to take over their mortgage obligations – 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 may 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 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 3 years. Rather than having the money sit in a bank they could be getting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term ceases you should be able to refinance the cost, or else you can sell. Unless you hit a real bad market the value of the house should have risen by then.
Most mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers prefare real estate. The mortgage is usually around 60-70% of the value of the property, 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. Complete the deal with a 2nd mortgage done with the seller. In case you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can see the entire picture. It is good that seller and buyer may work hand in hand. In the event that they can’t wait for a sale, you could still give them their initial price with a little versatility on their part.