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Are you thinking of investing in real estate? However you don’t have enough cash to do so. 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 every seller will be willing (or even understand) the concept outlined. Your best guess is to locate a property that the owner has great interest in offering it, whether because they are moving, divorce, or they are frustrated with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this technique perhaps your landlord would be happy to help you out! There are some variations that may be used depending upon you and your seller. Do they desire the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?
The easiest way is to consider taking over their mortgage payments – 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 obligations while the property remains in the seller’s name.
You take over the first mortgage and get a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – 2 or three years. Rather than having the money sit 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 investment term.
When the term ends you need to be able to refinance the cost, or else you could sell. Unless you hit a real bad market the value of the property should have risen in that time.
A lot of mortgage lenders merely want to make a great investment. While your local bank may still be lacking confidence there are plenty of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is usually around 60-70% of the value of the land, so as long as they know they get their money back in the value of the property if you default, they don’t care what sort of income you make. Complete the deal with a 2nd mortgage created with the seller. If you default they can still foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can see the whole picture. It is better that seller and buyer can work together. In the event they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.