Are you thinking of investing in real estate but you do not have enough cash to do so? Here is a tip you can use as long as the property seller is willing to negotiate with you. To be fair, not every seller will be interested (or even understand) the concept outlined. Your best bet is to find a property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.
Actually, if you are currently renting and thinking about using this technique perhaps your landlord would be happy to help you out! There are a few variations that can be used depending on you and your seller. Do they want the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest method is to take over their mortgage payments – called ‘assuming’ the mortgage. Although these loans are rare these days, some lenders still offer assumable loans. You will need to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may 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 create a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short period of time – 2 or 3 years. Instead of having the money sit in a bank they can be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term ends, you should be able to refinance the cost, or you can sell. Unless you hit a real bad market, the value of the property should have risen in that time.
Most mortgage lenders merely want to make a good investment. While your local bank may still shy away, there are plenty of financial lenders that would love to make a deal. Financiers like real estate. The mortgage is usually based on 60-70% of the value of the property, 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 money you make. Complete the deal with a second mortgage, created with the seller. If you default, they can still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can see the whole picture. It is better that seller and buyer can work together. If they can’t wait for a sale, you can still give them their asking price with a little flexibility on their part.
For more “no money down” strategies, listen to these two Old Dawg’s REI Network podcasts:
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.
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