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3 Ways to Avoid the Bank When Buying Rental Property


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As you probably know, it’s a lot harder to get a mortgage now than it was 5 years ago.  This applies to rental property as well as owner-occupied homes.  The real estate market crash has led to more governmental oversight, stricter requirements, and fewer lending options.  Plus, the economy still stinks, and as such banks are less willing to lend money right now compared to more fruitful economic times.

Therefore, now more than ever, if you plan to get a mortgage you must have a decent credit rating and the ability to plop down a fairly sizable down payment.  You will also need to have a reasonable debt-to-equity ratio, and you’ll have to comply with a lot of paperwork requirements.  So, if you are a perfect lending candidate, you’ll have no problems getting a mortgage.  Unfortunately, many investors do not fall into this category.  In this case, creative financing approaches may fit the bill.


One way to avoid the bank is to obtain seller financing.  In this scenario, the seller is basically the bank, and it is he/she that will extend the loan to you.  Of course, many sellers are not willing to do this, so your pool of acquisition targets will be smaller when you’re trying to find a property.  That said, these opportunities do exist, you may just need to look harder for them.

Another approach is a lease option.  This allows you to essentially have dibs on a property; that is, by making monthly payments, you can secure the property for a few years with the option to buy at the end of the term.  This can allow you the time needed to save the required amount of money, or pursue financial backing from other sources.


The third tactic is the “subject-to” approach.  This is a shorter term approach whereby you assume the seller’s mortgage when you buy his property.  The title will transfer into your name, but the mortgage will remain in the seller’s name.  Thus, you will pay the monthly payments to the seller directly.  This may or may not be allowed in your state, so make sure you do your homework.

The bottom line is that mortgage financing is more difficult to obtain right now than it was in the past, but don’t let that stop you from pursuing your dreams.  Work hard, make contacts within the industry, and become an expert in these and other creative financing techniques, and you’ll be just fine!



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