This article was originally featured in March 2018 Think Realty Magazine and written by Gene Guarino, president and CEO of RAL Academy.
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Are you thinking of investing in property? However, you do not have enough money to accomplish this. Here is a tip you may use as long as the person selling the property is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your better gamble is to find a property that the owner has great desire for offering it, whether because of moving, a divorce settlement, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and considering using this approach perhaps your landlord would be glad to help you out! There are some variations that may be used depending upon you and your vendor. Do they need the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to take 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 may as well try a ‘subject to’ assumption where you merely make obligations while the property remains in the seller’s name.
You take over the original mortgage and get a 2nd mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – two or three years. Rather than having the money sit down in a bank they could be getting a high interest over two or three years with the rest due in full at the end of the term.
When the term ceases you should be able to refinance the cost, or else you could sell. Unless you struck a genuine bad market the value of the house should have risen by then.
A lot of mortgage lenders merely want to make a good investment. While your local bank may still be lacking confidence there are a lot of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is mostly 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 done with the seller. In case you default they can still foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the complete picture. It is better that seller and buyer may work together. 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.