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Are you thinking of investing in property? But you don’t have enough cash to do this. In this article is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better wager is to find a property that the owner has great desire for selling, whether because of moving, divorce, or frustration with tenants.
Actually, if you are currently renting and thinking of 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 seller. Do they desire the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest method is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original lender to presume the mortgage. If you can’t 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 first mortgage and get 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 three years. Instead of having the money sit in a bank they can be collecting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term draws to a close you should be able to refinance the cost, or you could sell. Unless you struck an actual bad market the value of the property should have risen in that time.
Most mortgage lenders merely need to make a great investment. While your local bank could still shy away there are plenty of financial lenders that would wish to make a deal. Financiers prefare property investing. The mortgage is mostly based on 60-70% of the value of the land, so as long as they know they get their money back in the value of the property if you default, they don’t care what sort of revenue you make. Complete the deal with a second mortgage created 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 see the whole picture. It is good that seller and buyer can work together. If they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.