This article was originally featured in March 2018 Think Realty Magazine and written by Joe Fairless, Principal at Ashcroft Capital.
The most common type of apartment transaction is an on-market sale. An apartment owner lists their property with a broker, the broker markets the deal to the public, and, after a bidding war, the deal is awarded to the highest bidder. Off-market sales, where the apartment is purchased directly from the owner without an intermediary, are less c…
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Are you thinking of investing in property? However, you don’t have enough money to do so. In this article 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 find a property that the owner has great desire for offering it, whether because of moving, a divorce settlement, or frustration with the folks renting the property.
Actually, if you maybe currently renting and considering using this strategy perhaps your landlord would be happy to help you out! There are some variations that may be used depending upon you and your seller. Do they want the market price or are they just desperate to get out of the monthly payments – perhaps 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 can’t get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.
You take over the original mortgage and create a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time frame – 2 or three years. Instead of having the money stay in a bank they could be collecting a high interest over two or three years with the rest due in full at the end of the investment term.
When the term ceases you need to be able to refinance the cost, or you could sell. Unless you strike an actual bad market the value of the house should have risen by then.
A lot of mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are a lot of financial lenders that would wish 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 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. Conclude the deal with a 2nd mortgage created with the seller. If you default they can eventually foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can see the complete picture. It is better that seller and buyer may work hand in hand. If they can’t wait for a sale, you can still give them their asking price with a little overall flexibility on their part.