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Are you contemplating investing in property? But you don’t 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 all sellers will be willing (or even understand) the concept outlined. Your better gamble is to locate a property that the owner has great interest in offering it, whether because they are moving, divorce, or frustration with the folks renting the property.
Actually, if you are currently renting and thinking of using this strategy perhaps your landlord would be glad to help you out! There are several variations that may 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 easiest way is to consider taking 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 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 first mortgage and get 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. Instead of having the money sit in a bank they could be getting a high interest over two or three 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 perhaps 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 need to make a good investment. While your local bank could still shy away there are a lot of financial lenders that would wish to make a deal. Financiers like real estate. The mortgage is usually based on 60-70% of the value of the property, so as long as they understand they get their money back in the value of the land if you default, they don’t care what kind of income 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 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. If they can’t wait for a sale, you may still give them their asking price with a little versatility on their part.