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Are you contemplating investing in real estate? But you don’t have enough cash to do so. Here 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 best guess is to locate a land that the owner has great desire for selling, whether because of moving, a divorce settlement, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this strategy perhaps the owner would be glad to help you out! There are several variations that could be used depending on you and your vendor. Do they want the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest method is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the initial 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 repayments while the property remains in the seller’s name.
You take over the original 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 period – 2 or three years. Rather than having the money stay in a bank they could be collecting a high interest over two or three years with the remainder due in full at the end of the term.
When the term draws to a close you need to be able to refinance the cost, or you could sell. Unless you strike an actual bad market the value of the property should have risen in that time.
Most mortgage lenders merely need to make a good investment. While your local bank may still be lacking confidence there are a lot 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 land if you default, they don’t care what sort of money you make. Conclude 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 observe 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 versatility on their part.