Title and affiliations:
Senior Vice President of National Real Estate Insurance Group (NREIG), former Vice President of CORE Insurance Group, former Vice President of the National Condo and Apartment Insurance Group
• Intro to Risk Management
• Protecting Yourself and Your Properties
• Insuring Your Fix-and-Flips
Shawn Woedl has spent nearly 10 years of his professional life in property insurance after starting out on the …
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Are you contemplating investing in property? However you don’t have enough cash to accomplish this. Here is a tip you may use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your very best gamble is to find a property that the owner has great desire for selling, whether because of moving, divorce, or frustration with the folks renting the property.
Actually, if you maybe currently renting and thinking about using this approach perhaps your landlord would be glad to assist you! There are some variations that could be used depending on you and your seller. Do they desire the market price or are they just desperate to get out of the monthly payments – perhaps facing foreclosure?
The easiest way is to take over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the original lender to presume the mortgage. If you can’t 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 second 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 can be collecting 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 should be able to refinance the cost, or perhaps you can sell. Unless you strike a genuine bad market the value of the home should have risen in that time.
A lot of mortgage lenders merely want to make a good investment. While your local bank may still shy away there are lots of financial lenders that would like to make a deal. Financiers prefare real estate. The mortgage is mostly around 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 sort of revenue you make. Complete the deal with a second mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can observe the complete picture. It is better that seller and buyer can work together. In the event that they can’t wait for a sale, you may still give them their asking price with a little versatility on their part.