This article was originally featured in March 2018 Think Realty Magazine and written by Douglas Skipworth, Co-Founder and Principal Broker at CrestCore Realty.
Douglas Skipworth, Co-Founder and Principal Broker at CrestCore Realty
Did you know that the typical property management client owns “1.5 units?” Despite that low (and stra…
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Are you thinking of investing in real estate? However you do not have enough cash to do this. Right here is a tip you may use as long as the property seller is willing to negotiate with you.
To be fair, not all sellers will be interested (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 the people renting the place.
Actually, if you are currently renting and thinking about using this technique perhaps your landlord would be glad to help you out! There are a few variations that could be used depending upon you and your owner. Do they desire 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 obligations – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to presume 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 repayments 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 house with the seller. Offer a high, interest-only payment for a short time period – two or 3 years. Instead of having the money sit in a bank they can be getting 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 ought to be able to refinance the cost, or you could sell. Unless you strike a real bad market the value of the home should have risen by then.
A lot of mortgage lenders merely need to make a great investment. While your local bank could still shy away there are lots of financial lenders that would want to make a deal. Financiers prefare property investing. 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 land if you default, they do not care what kind of revenue you make. Complete the deal with a second mortgage done with the seller. If you default they could still foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can see the whole picture. It is better that seller and buyer may work together. In the event they can’t wait for a sale, you could still give them their asking price with a little versatility on their part.