The quote “I owe. I owe. It’s off to work I go!” is one of the most frequently repeated lines I hear about debt. Thankfully, an early mentor of mine told me that the real best quote about debt is, “Only borrow against income-producing assets.” He said it was the secret to his success (and he owns 8,000 multifamily units!).
Cash is King, but Credit is Very Close
Cash is the most effective way to purchase a rental property. It also comes with some big advantages:
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Are you thinking of investing in real estate? However, you do not have enough money to do this. In this article 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 wager is to locate a property that the owner has great interest in offering it, whether because of moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you are currently renting and considering using this technique perhaps your landlord would be happy to help you out! There are some variations that could be used depending on you and your owner. Do they want the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?
The simplest method is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will need 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 repayments 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 property with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 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 ends you need to be able to refinance the cost, or perhaps you can sell. Unless you hit an actual bad market the value of the home should have risen in that time.
Most mortgage lenders merely want to make a great investment. While your local bank may still be lacking confidence there are lots of financial lenders that would wish to make a deal. Financiers prefare real estate. The mortgage is usually 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 property if you default, they do not care what kind of revenue you make. Conclude the deal with a second mortgage created 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 observe the entire 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.