This article was originally posted in the April 2018 Think Realty Magazine.
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Are you contemplating investing in real estate? However, you don’t have enough cash to do this. In this article is a tip you may 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 best wager is to find a land that the owner has great interest in selling, whether because they are moving, divorce, or frustration with tenants.
Actually, if you are currently renting and thinking of using this technique perhaps the owner would be glad to assist you! There are several variations that could be used depending on you and your owner. Do they want the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make payments 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 three years. Rather than having the money sit down in a bank they can be collecting a high interest over 2 or 3 years with the rest due in full at the end of the term.
When the term ends you need to be able to refinance the cost, or else you could sell. Unless you strike an actual bad market the value of the property should have risen by then.
Most mortgage lenders merely need to make a great investment. While your local bank may still be lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers prefare real estate. 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 don’t care what kind of money you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can observe the complete picture. It is good that seller and buyer can work hand in hand. In the event that they can’t wait for a sale, you can still give them their asking price with a little overall flexibility on their part.