Debunking the “Liquidity Myth” Around Real Estate

Source: https://thinkrealty.com/debunking-the-liquidity-myth-around-real-estate/

When most investors think about their real estate assets, they believe them to be illiquid, meaning they are not easily converted into cash from their physical property form. This belief, dominant throughout the financial industry and across investing sectors, has formed some of the guiding principles that govern real estate investing and real estate investor behavior.

Too bad it’s wrong.

The fact of the matter is you can sell any building you want at any tim…

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Are you thinking of investing in property? However you do not have enough cash to do this. Here is a tip you may use as long as the property seller is willing to negotiate with you.

To be fair, not every seller will be interested (or even understand) the concept outlined. Your best wager is to locate a land that the owner has great interest in offering it, whether because of moving, divorce, or frustration with the folks renting the property.

Actually, if you maybe currently renting and considering using this technique perhaps your landlord would be happy to assist you! There are several variations that could be used depending upon you and your owner. Do they want the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?

The easiest way is to take over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the initial lender to presume the mortgage. If you cannot 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 first mortgage and make a second mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – two or three years. Rather than having the money sit in a bank they can be collecting a high interest over two or three years with the rest due in full at the end of the investment term.

When the term draws to a close you need to be able to refinance the cost, or else you could sell. Unless you struck a genuine bad market the value of the home should have risen by then.

Most mortgage lenders merely need to make a good investment. While your local bank could still be scared there are plenty of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is usually based on 60-70% of the value of the property, so as long as they understand they get their money back in the value of the property if you default, they don’t care what kind of income you make. Conclude the deal with a 2nd mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying down the existing mortgage in 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 may still give them their asking price with a little overall flexibility on their part.

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