Is that Home Inspection Worth It?

Source: https://thinkrealty.com/home-inspection-worth/

This article was originally featured in March 2018 Think Realty Magazine and written by Adam Pontier, owner of KCPE LLC.

When I was young, my father bought a home that we gutted to the bare studs and put back together as our family home. This was my first taste of construction and real estate investing. I loved it. Over the years, my father ended up buying more investment homes, some to hold and some to flip. I worked on nearly all of them and loved the rehab process.

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Are you thinking of investing in real estate? However, you don’t have enough cash to do so. Here 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 desire for selling, whether because they are moving, a divorce settlement, 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 may be used depending on you and your seller. Do they desire the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?

The easiest method is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the original 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 repayments while the property remains in the seller’s name.

You take over the original mortgage and create a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time frame – two or 3 years. Instead of having the money sit 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 draws to a close you need to be able to refinance the cost, or else you can sell. Unless you hit a genuine bad market the value of the home should have risen by then.

Most mortgage lenders merely need to make a good investment. While your local bank may still be scared there are a lot of financial lenders that would want to make a deal. Financiers prefare property investing. The mortgage is mostly based on 60-70% of the value of the land, so as long as they know they get their money back in the value of the property 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 in the proceeds.

Now you can observe the entire picture. It is good that seller and buyer may work together. In the event they can’t wait for a sale, you could still give them their initial price with a little versatility on their part.

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