How To Renovate Your First Rental Property

Source: https://www.reiclub.com/realestateblog/landlording-101-part2/

In a seller’s market, you might have to buy a property that needs renovation to secure a good deal. If you’ve never renovated a property before, this can seem like a daunting task. Most investors have heard horror stories of the $10,000 renovation that ended up costing $100,000, and if you don’t go in with […]…

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Are you thinking of investing in property? 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 every seller will be interested (or even understand) the concept outlined. Your best gamble is to locate a land that the owner has great interest in selling, whether because of moving, a divorce settlement, or frustration with the folks renting the property.

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

The simplest way is to consider taking 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 as well try a ‘subject to’ assumption where you merely make payments while the property remains in the seller’s name.

You take over the original mortgage and create 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. Rather than having the money stay 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 should be able to refinance the cost, or perhaps you can sell. Unless you struck a genuine bad market the value of the house should have risen by then.

Most mortgage lenders merely want 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 usually around 60-70% of the value of the land, 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 money you make. Complete the deal with a second mortgage done with the seller. If you default they could still foreclose on the property and sell it, paying down the existing mortgage with the proceeds.

Now you can observe the entire picture. It is good that seller and buyer can work together. In the event they can’t wait for a sale, you may still give them their initial price with a little versatility on their part.

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