Changes in home prices give us the best idea of what’s going on in a local real estate market. But you can’t just take price increases at face value and think that bigger is better. Home prices can be increasing at a good clip for three main reasons, two of which are not friendly to investors dealing with rental properties:
At the low end, prices can rebound in a depressed market.
We saw that a few years ago in pretty much every one of the 330 markets that Local Market Monitor …
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Are you thinking of 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 every seller will be willing (or even understand) the concept outlined. Your best wager is to locate a property that the owner has great desire for offering it, whether because of moving, a divorce settlement, or frustration with tenants.
Actually, if you maybe currently renting and thinking about using this technique perhaps the owner would be happy to assist you! There are several variations that can be used depending upon you and your owner. Do they want the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?
The simplest method 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 could as well 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 house with the seller. Offer a high, interest-only payment for a short time period – 2 or 3 years. Rather than having the money stay in a bank they could 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 ceases you need to be able to refinance the cost, or else you could sell. Unless you struck a real bad market the value of the house should have risen by then.
A lot of mortgage lenders merely want to make a good investment. While your local bank could still shy away there are plenty of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is usually 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 sort of revenue you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can see the whole 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 asking price with a little versatility on their part.