Investing in mortgage notes has made many people very wealthy and created cash flows for them that come in every month. I think of notes as cash-flow machines that you build, plug in, and then they produce income for you for years. The best news? There is no limit to how many of these machines you can build if you have the right tools.
Most people have some idea of what a mortgage note is, but not that many really understand how the investment vehicle might work …
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Are you thinking of investing in property? However, you do not have enough cash to do so. In this article is a tip you can use as long as the property seller is willing to negotiate along.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your very best wager is to find a property that the owner has great desire for selling, whether because they are moving, a divorce settlement, or they are frustrated with tenants.
Actually, if you maybe currently renting and thinking about using this approach perhaps the owner would be happy to assist you! There are a few variations that can be used depending on you and your vendor. Do they need the market price or are they just eager to get out of the monthly payments – perhaps facing foreclosure?
The easiest way is to take over their mortgage payments – 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 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 3 years. Rather than having the money sit down in a bank they could be collecting a high interest over two or three years with the remainder due in full at the end of the term.
When the term ceases you ought to be able to refinance the cost, or you can sell. Unless you hit an actual 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 may still shy away there are a lot of financial lenders that would like to make a deal. Financiers like property investing. The mortgage is mostly around 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 kind of money you make. Conclude the deal with a 2nd 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 observe the complete picture. It is better that seller and buyer may work hand in hand. In the event that they can’t wait for a sale, you may still give them their asking price with a little overall flexibility on their part.