Seven years ago, I moved from Eugene, Oregon to Kansas City, Missouri and have seen both sides of investing out-of-state. I’ve seen people in high-priced markets make very solid returns… more
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Are you thinking of investing in real estate? However, you do not have enough money to accomplish this. In this article is a tip you can use as long as the person selling the property is willing to negotiate along.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your better wager is to find a property that the owner has great desire for offering it, whether because of moving, a divorce settlement, or frustration with the people renting the place.
Actually, if you are currently renting and thinking of using this technique 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 want the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you can’t get approved for an assumable mortgage you may also try a ‘subject to’ assumption where you merely make payments while the property remains 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 period – 2 or 3 years. Rather than having the money sit down in a bank they could be collecting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term ends you ought to be able to refinance the cost, or you could sell. Unless you struck an actual bad market the value of the property should have risen by then.
A lot of mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are plenty of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is mostly around 60-70% of the value of the land, so as long as they know they get their money back in the value of the property if you default, they do not care what sort of income you make. Complete the deal with a second mortgage created with the seller. In case you default they could still foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can observe the entire picture. It is better that seller and buyer can work hand in hand. In the event they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.