As a real estate investor, to take on a home renovation there is an art to “forcing appreciation” or, as it is more commonly described, “adding value” to a property. The process usually involves a series of upgrades and home renovations to an existing property in order to bring the property up to retail standards; it’s pretty much the storyline for all of HGTV’s biggest hits lately. However, according to Remodeling magazine’s 2018 “Cost vs. Value” report, the returns on even…
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Are you contemplating investing in property? But you do not have enough cash to do this. In this article is a tip you can 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 guess is to find a land that the owner has great interest in selling, whether because of moving, a divorce settlement, or they are frustrated with the folks renting the property.
Actually, if you are currently renting and thinking about using this approach perhaps the owner would be glad to assist you! There are some variations that can be used depending upon 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 repayments – called ‘assuming’ the mortgage. You will have to be approved by the original 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 obligations while the property remains in the seller’s name.
You take over the original mortgage and make a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short time frame – two or three 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 term.
When the term ends you should be able to refinance the cost, or else you could sell. Unless you struck a genuine bad market the value of the house should have risen by then.
A lot of mortgage lenders merely need to make a great investment. While your local bank could still shy away there are plenty of financial lenders that would want to make a deal. Financiers like property investing. The mortgage is mostly 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 don’t care what kind of revenue you make. Conclude the deal with a second mortgage created with the seller. If you default they could eventually foreclose on the property and sell it, paying off the existing mortgage in the proceeds.
Now you can see the entire picture. It is better that seller and buyer can work together. In the event that they can’t wait for a sale, you could still give them their asking price with a little overall flexibility on their part.