You’ve found the perfect distressed property to fix and flip. You’ve done your due diligence. The price is right. The rehab is doable and can be done on a timely basis. The profit is just waiting for you. So what’s the holdup? The answer is the financing. Even if you qualify for a bank loan, […]…
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Are you thinking of investing in real estate? However, you don’t have enough money to accomplish this. In this article is a tip you are able to 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 guess is to locate a property that the owner has great interest in selling, whether because they are moving, a divorce settlement, or frustration with the people renting the place.
Actually, if you maybe currently renting and thinking of using this approach perhaps your landlord would be happy to help you out! There are several variations that can 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 – maybe facing foreclosure?
The simplest method is to take 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 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 create 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 three years. Rather than having the money stay in a bank they could be collecting a high interest over 2 or 3 years with the rest due in full at the end of the term.
When the term ends you should be able to refinance the cost, or else you could sell. Unless you struck an actual bad market the value of the house should have risen in that time.
Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is usually 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 estate if you default, they do not care what kind of income you make. Complete the deal with a second mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the complete picture. It is better that seller and buyer can work hand in hand. In the event that they can’t wait for a sale, you may still give them their asking price with a little overall flexibility on their part.