“When you’re buying investment property, especially property you want to fix and flip or fix up and rent out, you want to be sure that you’re getting the best deal possible. As you sit down to negotiate before writing up that important contract, there are several points to consider–and it’s not just about the final price […]…
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Are you contemplating investing in property? However, you do not have enough cash to accomplish this. Here 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 interested (or even understand) the concept outlined. Your better wager is to find a land that the owner has great desire for offering it, whether because of moving, divorce, or frustration with the folks renting the property.
Actually, if you maybe currently renting and considering using this approach perhaps the owner would be happy to help you out! There are a few variations that could be used depending on you and your owner. Do they need the market price or are they just eager 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 first 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 stays in the seller’s name.
You take over the first mortgage and make a 2nd 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 stay in a bank they could be getting a high interest over two or three years with the remainder due in full at the end of the term.
When the term ends you need to be able to refinance the cost, or else you could sell. Unless you hit a genuine bad market the value of the property should have risen in that time.
A lot of mortgage lenders merely need to make a good investment. While your local bank may still be scared there are lots of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is usually 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 do not care what sort of income you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they can eventually foreclose on the property and sell it, settling the existing mortgage in the proceeds.
Now you can see 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 initial price with a little versatility on their part.