4 Rules Of Thumb For Apartment Investing When It’s OK To OVERPAY

Source: https://www.reiclub.com/realestateblog/4-rules-apartment-investing-overpay/

We’re taught that we should never underwrite an apartment real estate deal based on future performance, always on current performance. This is great advice, but sometimes it doesn’t match reality. Here’s an extreme example to make my point: what if you’re looking at an empty 10-unit apartment building? Technically, the net operating income (NOI) is actually NEGATIVE and if we […]…

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Are you contemplating investing in real estate? But you don’t have enough money to do this. In this article is a tip you can use as long as the property seller is willing to negotiate with you.

To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better wager is to locate a property that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with the people renting the place.

Actually, if you maybe currently renting and thinking about using this approach perhaps your landlord would be glad to assist you! There are a few variations that could be used depending upon you and your vendor. Do they need the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?

The easiest way is to consider taking over their mortgage repayments – 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 may also try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.

You take over the first mortgage and make a 2nd 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. Rather than having the money sit down 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 should be able to refinance the cost, or perhaps you can sell. Unless you strike a real bad market the value of the home should have risen by then.

Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are a lot of financial lenders that would want to make a deal. Financiers like real estate. The mortgage is usually around 60-70% of the value of the land, so as long as they know they get their money back in the value of the estate if you default, they don’t care what sort of income you make. Complete the deal with a 2nd mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.

Now you can observe the entire picture. It is better that seller and buyer may work together. 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.

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