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Are you contemplating investing in real estate? But you don’t have enough cash to do this. In this article is a tip you may use as long as the person selling the property is willing to negotiate with you.
To be fair, not all sellers will be willing (or even understand) the concept outlined. Your very best guess is to locate a property that the owner has great desire for selling, whether because of moving, a divorce settlement, or they are frustrated with tenants.
Actually, if you maybe currently renting and thinking of using this technique perhaps the owner would be happy to help you out! There are several variations that can be used depending upon you and your vendor. Do they want the market price or are they just desperate to get out of the monthly payments – maybe facing foreclosure?
The easiest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may 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 first mortgage and make a 2nd 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 stay 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 draws to a close you ought to be able to refinance the cost, or perhaps you can sell. Unless you struck an actual bad market the value of the house should have risen by then.
Most mortgage lenders merely need to make a great investment. While your local bank could still be scared there are plenty of financial lenders that would want to make a deal. Financiers prefare property investing. The mortgage is usually 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 income you make. Conclude 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 may work hand in hand. In the event that they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.