Real estate investors love discovering new sources of capital to fund their deals, but sometimes getting to that capital can be a little complicated. Think Realty Magazine sat down with… more
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Are you thinking of investing in real estate? However, you do not have enough money to do so. 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 all sellers will be willing (or even understand) the concept outlined. Your better gamble is to find a land that the owner has great interest in selling, whether because they are moving, a divorce settlement, or they are frustrated with tenants.
Actually, if you are currently renting and considering using this strategy perhaps the owner would be happy to assist you! There are several variations that can be used depending on you and your owner. Do they desire the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The easiest method is to take over their mortgage repayments – 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 could 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 make 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. Instead of having the money stay in a bank they could 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 ends you need to be able to refinance the cost, or else you can sell. Unless you hit an actual bad market the value of the home should have risen by then.
Most mortgage lenders merely want to make a great investment. While your local bank could still shy away there are lots of financial lenders that would like to make a deal. Financiers like real estate. The mortgage is mostly around 60-70% of the value of the property, so as long as they understand 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. If you default they could still foreclose on the property and sell it, paying off the existing mortgage with 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 initial price with a little versatility on their part.