This article was originally featured in March 2018 Think Realty Magazine and written by Aaron Norris, VP of The Norris Group.
Would you rather take an investment course from a local university professor with mild success managing a small portfolio or from Warren Buffet?
Your answer is hopefully the latter. Technology has made this very scenario possible for over a decade, but recent developments in tech and education have put the education sector (K-12 a…
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Are you thinking of investing in real estate? But you don’t have enough cash to do so. Here is a tip you can use as long as the property seller is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your better guess is to find a land that the owner has great desire for selling, whether because of moving, divorce, or they are frustrated with the people renting the place.
Actually, if you are currently renting and thinking of using this technique perhaps your landlord would be happy to help you out! There are a few variations that can 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 – maybe facing foreclosure?
The easiest method is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to presume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make repayments while the property remains in the seller’s name.
You take over the first mortgage and get a second 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. Instead of having the money stay in a bank they can be getting a high interest over two or three years with the remainder due in full at the end of the term.
When the term ends you should be able to refinance the cost, or you could sell. Unless you strike a genuine bad market the value of the house should have risen in that time.
Most mortgage lenders merely need to make a great investment. While your local bank could still be scared there are plenty of financial lenders that would wish to make a deal. Financiers like real estate. The mortgage is usually around 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 do not care what kind of income you make. Conclude 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 in the proceeds.
Now you can observe the entire picture. It is better that seller and buyer may work hand in hand. In the event they can’t wait for a sale, you can still give them their asking price with a little overall flexibility on their part.