Why we Prefer Value-Add Deals and Long-Term Holds

Source: http://astudentoftherealestategame.com/why-we-prefer-value-add-deals-and-long-term-holds/

Real estate firms and investors each form their own investment strategy based on their risk-tolerance, desired hold period, expertise, and target returns. Some prefer core or core-plus investments which are typically high-quality assets in primary markets with little unrealized upside, …

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Are you thinking of investing in property? But you don’t have enough money to do this. Here is a tip you may use as long as the property seller is willing to negotiate with you.

To be fair, not every seller will be willing (or even understand) the concept outlined. Your best guess is to locate a property that the owner has great desire for offering it, whether because of moving, divorce, or frustration with tenants.

Actually, if you maybe currently renting and thinking of using this technique perhaps the owner would be happy to help you out! There are a few variations that may be used depending upon you and your owner. Do they desire the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?

The easiest method is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to presume the mortgage. If you can’t get approved for an assumable mortgage you may 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 make 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 remainder due in full at the end of the investment term.

When the term ends 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 by then.

A lot of mortgage lenders merely need to make a good investment. While your local bank could still be scared there are lots of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is mostly 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. Conclude the deal with a 2nd mortgage done with the seller. If you default they could eventually foreclose on the property and sell it, settling the existing mortgage with the proceeds.

Now you can observe the entire picture. It is good that seller and buyer can work hand in hand. If they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.

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