Daren Blomquist, senior vice president of communications at ATTOM Data Solutions (formerly RealtyTrac), has spent nearly two decades analyzing housing data and providing the real estate industry with insight on housing statistics and trends. Blomquist, who is also the managing editor of ATTOM Data’s monthly newsletter, excerpts of which may be read each month in Think Realty Magazine, is an expert data miner, skilled not just in spotting real estate trends but also in identifying investment…
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Are you contemplating investing in property? However, you don’t have enough cash to do this. Here is a tip you can 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 very best guess is to locate a property that the owner has great desire for selling, whether because of moving, a divorce settlement, or they are frustrated with the people renting the place.
Actually, if you are currently renting and thinking of using this strategy perhaps your landlord would be glad to help you out! There are a few variations that may be used depending on you and your seller. Do they need the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The easiest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to presume the mortgage. If you cannot get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.
You take over the first mortgage and create a second 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 down in a bank they can be collecting 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 ought to be able to refinance the cost, or you can sell. Unless you struck a genuine 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 may still shy away there are plenty of financial lenders that would want to make a deal. Financiers like property investing. The mortgage is usually around 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 don’t care what sort of income you make. Complete the deal with a second mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can observe the whole picture. It is good that seller and buyer can work together. In the event they can’t wait for a sale, you can still give them their initial price with a little versatility on their part.