Affinity Loss Prevention Services (ALPS) is your source for information and resources to help you avoid preventable losses at your investment properties. Any loss costs you money, but it could… more
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Are you thinking of investing in real estate? However, you do not have enough cash to do this. Here is a tip you may use as long as the property seller is willing to negotiate along.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your very best guess is to locate a property that the owner has great interest in offering it, whether because they are moving, divorce, or frustration with the people renting the place.
Actually, if you maybe currently renting and thinking about using this strategy perhaps your landlord would be glad to assist you! There are several variations that can be used depending upon you and your vendor. Do they need the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?
The easiest method is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to presume the mortgage. If you cannot get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make repayments while the property stays in the seller’s name.
You take over the original 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 frame – 2 or 3 years. Instead of having the money sit down in a bank they can be collecting a high interest over two or three years with the rest due in full at the end of the term.
When the term ends you need to be able to refinance the cost, or you can sell. Unless you struck a real bad market the value of the home should have risen by then.
Most mortgage lenders merely need to make a great investment. While your local bank may still be lacking confidence there are plenty of financial lenders that would wish to make a deal. Financiers like real estate. The mortgage is usually around 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 sort of money you make. Complete 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 in the proceeds.
Now you can observe the whole picture. It is better that seller and buyer can work hand in hand. If they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.