When Jason Lipsitz and his business partner, Lee Fondiller, co-owners of South Hill Homes, got a first glance at their very first fix-and-flip deal, they realized that they were in for some serious work. Fortunately, that work came with some pretty serious returns, as well. “We got the lead from our mentor, Craig Fuhr of FLIPClub,” said Lipsitz. “The house was an REO that had been purchased at a foreclosure auction, and it was in pretty rough shape even though it was built…
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Are you contemplating investing in real estate? However, you do not have enough cash to do this. In this article is a tip you may use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better gamble is to find a land that the owner has great interest in selling, whether because they are moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and considering using this approach perhaps your landlord would be glad to help you out! There are several variations that may be used depending on you and your seller. Do they want the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?
The easiest method is to consider taking over their mortgage payments – 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 may as well try a ‘subject to’ assumption where you merely make payments while the property stays 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. Rather than having the money stay in a bank they could be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ceases you need to be able to refinance the cost, or else you could sell. Unless you struck a real bad market the value of the property should have risen by then.
A lot of mortgage lenders merely want to make a good investment. While your local bank could still be lacking confidence there are a lot of financial lenders that would like to make a deal. Financiers prefare real estate. The mortgage is mostly around 60-70% of the value of the land, so as long as they understand they get their money back in the value of the estate if you default, they don’t care what sort of money you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they could still foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can observe the entire picture. It is good that seller and buyer may work hand in hand. If they can’t wait for a sale, you could still give them their asking price with a little versatility on their part.