This article was originally published in Think Realty Magazine, October 2017 issue. To read the digital version of the magazine sign-up for a free membership.
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Are you contemplating investing in property? However you don’t have enough cash to accomplish this. Here is a tip you may use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better guess is to locate a property that the owner has great desire for selling, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and considering using this strategy perhaps your landlord would be happy to assist you! There are a few variations that could be used depending on you and your vendor. Do they want the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make obligations while the property remains in the seller’s name.
You take over the first mortgage and get a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 years. Rather than having the money sit in a bank they could 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 ceases you should be able to refinance the cost, or perhaps you could sell. Unless you struck a genuine bad market the value of the property should have risen in that time.
Most mortgage lenders merely need to make a great investment. While your local bank may still be scared there are plenty of financial lenders that would wish to make a deal. Financiers prefare real estate. The mortgage is mostly 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 property if you default, they don’t care what sort of money you make. Conclude 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 can work hand in hand. In the event they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.