If you’ve ever bought a distressed property or really any property for that matter, you probably already know the obvious signs of costly repairs. Sloping floors, water damage in ceilings and old electrical panels are all easy to see problems that might mean big money to fix. But what if you’re walking through a house that doesn’t […]…
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Are you contemplating investing in property? But you don’t have enough money 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 every seller will be willing (or even understand) the concept outlined. Your better wager is to find a property that the owner has great interest in offering it, whether because of moving, divorce, or frustration with tenants.
Actually, if you maybe currently renting and considering using this strategy perhaps your landlord would be happy to help you out! There are a few variations that could be used depending on you and your owner. Do they want the market price or are they just desperate to get out from the monthly payments – perhaps facing foreclosure?
The simplest method is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the first 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 obligations while the property stays in the seller’s name.
You take over the first mortgage and create a second 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 sit down in a bank they could be getting a high interest over two or three years with the remainder due in full at the end of the term.
When the term ends you ought to be able to refinance the cost, or perhaps you could sell. Unless you strike a genuine bad market the value of the property should have risen by then.
Most mortgage lenders merely need to make a good investment. While your local bank could still be lacking confidence there are plenty of financial lenders that would wish 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 estate if you default, they do not care what kind of revenue you make. Conclude the deal with a second mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can see the whole picture. It is good that seller and buyer may work together. In the event that they can’t wait for a sale, you could still give them their asking price with a little overall flexibility on their part.