Purchase Cheap Then Rent/sell Back At FMV?
I can purchase another FL property for 110,000, FMV 170,000. Owner will remain in home and rent with option to buy in 2 years. If I sell back at market value are there issues with usury laws? From what I understand some courts view this transaction as a loan and violates usury law since it could be viewed as a high cost loan. The renter (who sold me the property) is not required to buy, but holds the option to. No portion of his rent payment goes toward purchasing the home and he pays no fee for the option to buy. The equity in the property serves this purpose. Is there a more elegant method to arrange this transaction? Again, the owner wishes to remain in the home and that is the motivation to sell the home at a favorable price.
Once I own the property, I want to convert all the equity I can to cash. Can this be accomplished at closing rather than wait for a 2nd mortgage to close?
I have several of these deals ready to go once I figure out how best to do it. Your advice is greatly appreciated.
I would definately NOT allow the seller to stay in the home. They can move out into another one of your properties (or preferably one you don't own) and you can give them the option to purchase again but I would not let them stay there.
What the courts can say, if you do this, is that what you did was simply loan the homeowner money rather than purchase the home. If this happens and you have significant profit, you are sure to violate usury laws. IF you want to do this, check Florida's usury laws and then make sure you don't make any more profit than that. If I remember correctly usury is 18% meaning you can not give the option to the seller for more than $153,164 if you are going on simple interest.
In terms of getting that equity out there are some programs that a good mortgage broker can get you that go off the appraised value rather than the purchase price. A 2nd mortgage after closing is pretty easy to get too if you are purchasing in your own name.
What if instead of the "option to purchase" I give him the first right of refusal when I sell the property. And let's say I don't offer a discount on his purchase price.
Also, what lenders offer a purchase product using the appraised value as opposed to the purchase price? I've heard of this but thought it was a mith when I inquired about it with several lenders who had never heard of it and thought I was nuts!
Their are many lenders, Just look for one in your area.
Lori
[addsig]
Letting the owners stay in the property with an Option to buy it back sounds real nice, but the truth of the matter is once their situation improves...rather than being the knight in shining armor who rescued them, you will become the scum who ripped them off of their house. Collecting their lease might prove difficult, and they could come back at you in court saying that you were just giving them a loan using title as collateral.
Better to just steer clear of this nasty scenario.
C