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Are you contemplating investing in real estate? However you do not have enough cash to do this. Here is a tip you can 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 gamble is to locate a property that the owner has great desire for selling, whether because of moving, a divorce settlement, or they are frustrated with the people renting the place.
Actually, if you maybe currently renting and thinking of using this technique perhaps the owner would be happy to assist you! There are a few variations that can be used depending on you and your seller. Do they need the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?
The simplest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original lender to assume the mortgage. If you can’t get approved for an assumable mortgage you could also 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 make a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – two or 3 years. Instead of having the money stay in a bank they can be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term draws to a close you need to be able to refinance the cost, or perhaps you can sell. Unless you strike 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 may still shy away there are lots of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is mostly 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 property if you default, they don’t care what kind of revenue you make. Complete the deal with a 2nd mortgage done with the seller. In case you default they could eventually foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can see the complete picture. It is good that seller and buyer may work hand in hand. In the event that they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.