Samuel K. Freshman, author of Principles of Real Estate Syndication, the industry-acknowledged “bible” on the topic, and founder of private real estate investment firm Standard Management Company, describes his life as “the story of the lady or the tiger.” The narrative, a short story written in the early 1880s by Frank R. Stockton, relates the tale of a fictional kingdom in which men facing punishment must choose between two identical doors, one hiding a lovely woman to be th…
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Are you thinking of investing in real estate? However, you do not have enough cash to do so. In this article is a tip you may use as long as the person selling the property is willing to negotiate along.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your better wager is to find a land that the owner has great interest in selling, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and considering using this technique perhaps the owner would be glad to assist you! There are several variations that could be used depending upon you and your vendor. Do they desire the market price or are they just desperate to get out of the monthly payments – perhaps facing foreclosure?
The simplest way is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the initial 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 stays in the seller’s name.
You take over the first mortgage and make a second 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 sit in a bank they can be getting a high interest over two or three years with the rest due in full at the end of the term.
When the term ends you ought to be able to refinance the cost, or perhaps you could sell. Unless you hit a real bad market the value of the house should have risen by then.
Most mortgage lenders merely need to make a great investment. While your local bank may still shy away there are lots of financial lenders that would wish 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 income 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 off the existing mortgage in the proceeds.
Now you can observe the entire picture. It is good that seller and buyer can work hand in hand. In the event they can’t wait for a sale, you could still give them their asking price with a little versatility on their part.