Real estate has always been regarded as an equal-opportunity wealth creator. However, caveat emptor: Real estate historically has been full of scams. Based on my experience managing distressed real estate funds, that fear of being deceived and losing it all is the number one reason why smaller investors don’t invest in commercial partnerships.
These 10 essential questions will teach you how to clearly identify the strategic risks and rewards associated with any partnership deal.
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Are you contemplating investing in real estate? However you don’t have enough money to accomplish this. In this article is a tip you can use as long as the property seller is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your better wager is to locate a property that the owner has great interest in selling, whether because of moving, divorce, or frustration with the people renting the place.
Actually, if you are currently renting and thinking about using this approach perhaps your landlord would be happy to assist you! There are some variations that may be used depending on you and your vendor. 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 original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could also 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 second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time period – 2 or 3 years. Instead of having the money sit in a bank they can be collecting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term ends you ought to be able to refinance the cost, or else you can sell. Unless you strike a real bad market the value of the property should have risen in that time.
Most mortgage lenders merely want to make a good investment. While your local bank may still be lacking confidence there are lots of financial lenders that would like to make a deal. Financiers like real estate. The mortgage is usually based on 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 do not care what kind of income you make. Conclude the deal with a second mortgage done with the seller. If you default they can eventually foreclose on the property and sell it, paying down the existing mortgage with the proceeds.
Now you can observe the whole picture. It is good that seller and buyer can 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.