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Are you thinking of investing in property? However, you don’t have enough cash to do so. In this article 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 best gamble is to locate a property that the owner has great desire for selling, whether because they are moving, a divorce settlement, or frustration with the folks renting the property.
Actually, if you are currently renting and thinking about using this strategy perhaps the owner 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 desperate to get out from the monthly payments – maybe facing foreclosure?
The easiest method is to take over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the original lender to presume the mortgage. If you cannot get approved for an assumable mortgage you could as well 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 create a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – two or 3 years. Rather than having the money stay 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 investment term.
When the term ends you need to be able to refinance the cost, or you can sell. Unless you strike a real bad market the value of the home should have risen by then.
A lot of mortgage lenders merely want to make a great investment. While your local bank could still be scared there are plenty of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is usually 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 property if you default, they don’t care what kind of income you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they can still foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can see the complete picture. It is good that seller and buyer may work together. In the event they can’t wait for a sale, you may still give them their initial price with a little overall flexibility on their part.