Can I have the deed please?
When talking to sellers, your main objective is to get the deed with as little money out of your pocket as possible. The deed is the most important and powerful method of controlling a property. Sure you can control with out owning but that is not my first choice. The ideal result is to have them deed you the property, subject to the mortgage. You are not assuming it. You agree to make the payments, but your name is not going on the loan. The concept is like when two people who are married buy a house and qualify for a loan together. Then they get divorced and the wife usually stays in the house with the kids. The deed is transferred to her alone but his name stays on the loan until it is either refinanced or sold. The husband’s credit is still at risk and he hopes she will pay.
So you, as the investor, will be the new owner of record. There will be a transfer of title from the seller to your trust. The bank is usually not notified but in today’s market, they probably would not care as long as the payment is being made. You will then find someone else to make the payments. Make sure you disclose everything to the seller and the new buyer. You also have to be aware of the new “safe Act” requirements.
If you have to come up with cash, keep in mind what your back door is. You want to come up with no more cash than you can get from the new buyer. This is ideally. Sometimes, if there is equity, it makes sense to keep money in the deal. Figure out what the return is on the cash that stays in the deal. It better beat bank rates by at least double.
This is also true if the seller is acting like the bank and financing the property .
If the seller is uncomfortable with giving you the deed, then suggest an installment land contract or wrap. This is where all documents are signed and held with an escrow company until you refinance or sell the property.
Next in line of desirability is the lease option. You are the master tenant and will sub-lease to someone else who will someday buy the property.
The last resort is to qualify for the loan yourself. Keep in mind that you are a non-owner occupant and the process will be horrible. If you don’t have a ”job”, your chances of qualifying are slim to none. The interest rate will be about ½ point higher than an owner occupant. You also have to come up with 20% down. That’s if you don’t go FHA. (FHA is 30% down). Forget easy doc loans – they went bye bye. The only way it makes sense to do this is if you intend to wrap it to the next buyer or if you are getting a fabulous price. Otherwise, you will probably find yourself in a negative cash flow situation – which I don’t recommend. However, with rents rising the way they have been, it is entirely possible to get a positive cash flow. It all depends on what you strategies are.
It’s all about the math, folks.