Section 1031: West Coast vs East Coast


The history of the tax code pursuant to IRC Section 1031 is striking when viewed against one simple critical factor that runs through real estate: Real Estate is a local… more

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Are you thinking of investing in real estate? However you do not have enough cash 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 interested (or even understand) the concept outlined. Your better guess is to find a land that the owner has great interest in offering it, whether because of moving, a divorce settlement, or frustration with the people renting the place.

Actually, if you maybe currently renting and considering using this technique perhaps the owner would be happy to help you out! There are several variations that can be used depending upon you and your vendor. Do they want the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?

The easiest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original 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 obligations 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 three 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 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 perhaps you could sell. Unless you struck a real bad market the value of the property should have risen in that time.

Most mortgage lenders merely want to make a great investment. While your local bank could still be scared there are plenty of financial lenders that would want 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 land if you default, they do not care what sort of revenue you make. Conclude the deal with a second mortgage done with the seller. In case you default they can eventually foreclose on the property and sell it, paying off the existing mortgage in the proceeds.

Now you can observe the complete picture. It is good that seller and buyer may work hand in hand. If they can’t wait for a sale, you can still give them their asking price with a little versatility on their part.

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