Sometimes, self-directed investors using individual retirement accounts (IRAs) to invest in real estate find themselves in the position of not having quite enough cash. An IRA that is real-estate rich… more
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Are you thinking of investing in real estate? But you don’t have enough cash to do this. Here is a tip you are able to use as long as the person selling the property is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your best gamble is to locate a property that the owner has great interest in selling, whether because they are moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you are currently renting and thinking about using this technique perhaps your landlord would be glad to help you out! There are a few variations that may be used depending on you and your vendor. Do they need the market price or are they just desperate to get out of the monthly payments – perhaps facing foreclosure?
The easiest method is to consider taking over their mortgage obligations – 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 may as well 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 create a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 2 or three years. Instead of having the money stay in a bank they can be collecting a high interest over two or three years with the remainder 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 struck a genuine bad market the value of the house should have risen by then.
Most 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 prefare real estate. 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 land if you default, they don’t care what kind of money you make. Conclude the deal with a second mortgage done with the seller. In case you default they could still 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 may work hand in hand. If they can’t wait for a sale, you may still give them their initial price with a little overall flexibility on their part.