Over the past 7 years, Atlas has acquired 45 properties with a total deal value of ~$800M. Over that time, we’ve grown from 3 guys in a 100 SF shared office, to an integrated team with 5 operating platforms. It’s …
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Are you thinking of investing in real estate? But you do not have enough money 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 all sellers will be willing (or even understand) the concept outlined. Your best wager 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 maybe currently renting and thinking about using this technique perhaps the owner would be happy to help you out! There are some variations that could be used depending on you and your vendor. Do they want 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 first lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.
You take over the first mortgage and make a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – two or three years. Rather than having the money sit in a bank they could 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 ends you should be able to refinance the cost, or you could sell. Unless you hit a genuine bad market the value of the property should have risen by then.
A lot of mortgage lenders merely want to make a great investment. While your local bank may still be scared there are plenty of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is usually 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 estate if you default, they do not care what kind of income you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can see the entire picture. It is better that seller and buyer can 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 overall flexibility on their part.