Last month I met with a potential client, who was unhappy with the service he was receiving through the company that was currently servicing his Self-Directed IRA. He described the… more
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Are you thinking of investing in property? However, you don’t have enough cash to accomplish this. Right here is a tip you can use as long as the person selling the property is willing to negotiate along.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your best gamble is to find a property that the owner has great interest in selling, whether because of moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you are currently renting and thinking of using this technique perhaps the owner would be happy to help you out! There are a few variations that could be used depending upon you and your owner. Do they need the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The easiest way is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to presume 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 stays 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 frame – 2 or three years. Instead of having the money stay in a bank they can be getting a high interest over two or three 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 can sell. Unless you hit a genuine bad market the value of the property should have risen in that time.
A lot of mortgage lenders merely need to make a great investment. While your local bank may still be lacking confidence there are lots of financial lenders that would want to make a deal. Financiers like real estate. The mortgage is usually based on 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 don’t care what sort of income you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can see the entire picture. It is better that seller and buyer can work hand in hand. If they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.