When LoanLogic’s senior vice president of industry relations and consulting, Les Parker, starts blogging about volatility, it pays off for real estate investors to listen. “This year is shaping up… more
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Are you contemplating investing in real estate? But you do not have enough cash to accomplish this. In this article 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 interested (or even understand) the concept outlined. Your best guess is to find a land that the owner has great interest in selling, whether because of moving, a divorce settlement, 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 assist you! There are several variations that can be used depending upon you and your vendor. Do they need the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to consider taking over their mortgage repayments – 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 obligations while the property remains 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 frame – 2 or 3 years. Rather than having the money sit in a bank they could be getting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ceases you should be able to refinance the cost, or you could sell. Unless you hit an actual bad market the value of the property should have risen in that time.
A lot of mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty 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 estate if you default, they do not care what kind of money you make. Complete the deal with a second 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 observe the entire picture. It is better 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 versatility on their part.