8 Strategies Of Mortgaging Out Real Estate

By on March 1, 2014

When a mortgage is mentioned, most people think of it as being one of 2 things. It is either to take out a loan to buy property, or to refinance a loan for costs savings or to generate cash. But if you are creative enough on how to make use of mortgages, there are many other ways to exploit it to your own advantage for a windfall. These strategies are especially prevalent in deregulated free economies that have matured with time. Here are just some of the ways to play the game.

Mortgage practices and structures vary from place to place, you have to check out your own market to see if the below strategies are applicable to where you are operating from.

1) Buy at a price lower than appraised value. To do this, you need to obtain a home loan at the maximum amount that you can qualify for. As mortgage quantums are based on valuation, transacting at a lower price compared to valuation means that there will be excess cash leftover that you can use for other means.

2) Obtain a second mortgage that is in excess of the amount required for down payment. When you are getting this from the same lender of the first mortgage, you are most likely to be turned away. So if you plan to go ahead with this, you have to use a lender that is different from the first.

3) Get secured leverage. It can sound ridiculous to some people, but do you know that lenders can lend huge amounts of money to people who deposits cash with them? This can be in terms of fixed deposits, or structured deposits, unit trusts, etc. For example, a lender might be more than willing to lend you $800,000 for a $1,000,000 house if you can deposit $200,000 into a timed deposit with them. And the terms of agreement can mean that you only have to leave your cash with them for a minimum of 6 months. You don’t need to stress yourself out by trying to wrap you head around this one. Just know that these arrangements exists even for those who are not high net worth individuals.

mortgage out house4) Purchase money mortgage. This is a form of seller financing whereby the buyer borrows from the seller as part of the closing transaction. And it usually occurs when buyers are not able to get enough money from traditional lenders to close. Or when the buyer is taking over the seller’s existing mortgage. Purchase money mortgage will fill up the gap between the existing loan and the agreed selling price. You can include the expenses incurred in the process of real estating.

5) Equity loan. As an investor, you must already be familiar with cash out refinancing. It is basically a term loan against property. And there are no restrictions on how you want to use the cash generated. Do take note that some lenders might have their own internal policies on what the funds from home equity loans are to be used for. So if you are using it for down payments to buy more real estate, these lenders might turn you away.

6) Get mortgage approved, then secure a lower price. This is a basic loophole strategy. Borrow more, and buy less. If the territories where you operate do not have laws that prevent you from doing this. You don’t have to lose sleep for going ahead with it. You are just a shrewd investor bending the rules without breaking it.

7) Increase value and cash out. Works very well for properties in bad condition. Sometimes a simple restoration exercise is enough to bring up the value of a house to what it is really worth in the market. You can get rehabilitation financing for construction, then cash out with home equity. Doing so can increase your quantums to significantly higher levels compared to before construction.

8) Renovation and construction loans. Get these loans approved before taking over the title of the properties. Then use the money for the down payment or any fraction of the purchase price. Nobody will pester you as long as you repay the loans like a good boy.

Although the successful application of any of these methods can already result in a windfall for you, the real power comes when you play a combination of these strategies. But before going ahead with any of them, do remember that you are taking on huge leverage and risks. Beginners should get some experience under their belt before attempting.



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