My guest today is Louisville investor Erik Hitzelberger. Today’s show is about aligning your investments and your goals. Erik and his partner Bryan Snider are the co-founders of Freedom Property Group. This company is a little bit different in that they don’t think of themselves as a real estate company, but rather a company […]
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Are you thinking of investing in property? However, you don’t have enough money to do so. 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 every seller will be interested (or even understand) the concept outlined. Your better gamble is to locate a property that the owner has great desire for offering it, whether because they are 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 strategy perhaps the owner would be happy to assist you! There are a few variations that may be used depending on you and your vendor. Do they want the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The easiest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to assume the mortgage. If you can’t get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make obligations while the property remains in the seller’s name.
You take over the first mortgage and get a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – two or three years. Instead of having the money sit down in a bank they can be getting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term draws to a close you need to be able to refinance the cost, or else you can sell. Unless you struck a genuine bad market the value of the house 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 like real estate. The mortgage is mostly around 60-70% of the value of the land, so as long as they understand they get their money back in the value of the property if you default, they do not care what sort of money you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the whole picture. It is better that seller and buyer may work hand in hand. If they can’t wait for a sale, you can still give them their initial price with a little versatility on their part.