When you invest in rental property, you’re essentially investing in a business. While lucrative, even the most passive income investments will require some attention over time. Just like any business, it will take some creative thinking and forward planning to retain continued gains as the industry moves, shifts, and changes. So how do you ensure […]…
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Are you contemplating investing in property? However, you do not have enough cash to accomplish this. Here is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your very best wager is to find a property that the owner has great desire for offering it, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you maybe currently renting and thinking about using this strategy perhaps the owner would be glad to assist you! There are a few variations that could be used depending upon you and your vendor. Do they desire the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the initial 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 repayments 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 period – two or 3 years. Rather than having the money sit 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 ceases you need to be able to refinance the cost, or perhaps you can sell. Unless you strike a genuine bad market the value of the property should have risen by then.
A lot of mortgage lenders merely want to make a good investment. While your local bank may still be lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers like real estate. The mortgage is mostly based on 60-70% of the value of the property, so as long as they know they get their money back in the value of the land if you default, they don’t care what kind of money you make. Conclude the deal with a 2nd mortgage created with the seller. In case you default they could still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the entire picture. It is better that seller and buyer may work hand in hand. In the event they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.