Over the past several weeks, I’ve been deep in a new value-add multifamily transaction. Acquiring real estate is cumbersome, complex, and opaque, yet we continue to complacently accept this reality. Part of the issue is that acquiring real estate is …
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Are you contemplating investing in real estate? However you do not have enough money to accomplish this. Here 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 best wager is to locate a land that the owner has great desire for selling, whether because of moving, divorce, or they are frustrated with the people renting the place.
Actually, if you are currently renting and thinking of using this strategy perhaps your landlord would be glad to help you out! There are a few variations that may be used depending on you and your owner. Do they want the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The simplest way is to consider taking over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also 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 make 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 three years. Instead of having the money sit 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 investment term.
When the term ceases you should be able to refinance the cost, or you could sell. Unless you struck a genuine 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 be scared there are lots of financial lenders that would wish to make a deal. Financiers prefare real estate. The mortgage is mostly 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 estate if you default, they don’t care what sort of income you make. Complete the deal with a second mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the complete picture. It is better that seller and buyer may work together. In the event that they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.