What Are Some Creative Options?
Hi there. I have been reading posts on this website for quite a few months now, and I have seen some great advise. I hope that someone can help me on this deal.
I have some friends that are moving out of the state in the next few weeks because of a job transfer and they need to get rid of their townhouse. I really want to work out some kind of a deal with them.
Their townhouse was purchased about 15 months ago for $179K . My friends do not want to take any lower than $192K for it. It has 2 bedrooms, 2 1/2 bath, 1350 sqr ft, wood floors, and cathedral ceiling in master. Assessments per month are $135. Another townhouse in the next building over just sold about five months ago for $162K. (This model was purchased for $150K and had NO options on it.) My friends are able to get reimbursed for half of the real estate commission if they sell it with an agent before they move (which is a few weeks).
I would like to take control of this property and do a lease option and rent it out. How can I become owner of the property and keep their current mortgage? (They are loan officer's so they have a 3.5% interest rate with a one year arm. ) Is there really any kind of "closing" if we do not close out the mortgage? Can we just quit claim deed the property in to my name? Without getting closing out the mortgage, would this make it difficult for my friends to get a new mortgage on their house?
Finally, if they are flexible agree to turn over the property control and the mortgage to me, would you agree to pay the difference (asking price-mortgage amt) in a second mortgage to them? Is this a bad idea?
What are my other options?
Thank you so much for your much needed advice!
is their mortgage assumable ?
if so that is one way you can keep the same %rate
or, you say the want 192K , but the property next door sold for less? is that home similar to the one your looking @?is the price set by an apraiser or their analysis?do you have any doubt you might not be able to sell it in the future because of the area it is in?
anyway, lets say its apraised @ 192 at max,you might be able to get them to agree to land contract for 179K for 20yrs
and pay them their 13K remainder, and if your thinking of selling it ,rent it out for a year make some $ and then sell it so that @ least if its only worth 192@ max
you can sell it for probably a 13-14K profit.
but try not to feel rushed , or feel like it might be to good of a deal, if you deny it @ the moment ,things might change with the seller where you can buy it on your own terms not theirs. ive done it before,and paid for it.
im not saying you should not buy it ,,i dnt know sellers or details,but take a deep breath ,and sleep on it
i hope i helped
roy
Typically an assumable mortgage is VA or FHA. It's rare to find them done by anyone else. Your chances on that one are slim to none.
Maybe you can use the Lease with Option, but most likely you would have to give them the option money up front to cover their new place. If they accept this, then their payments of mortgage, taxes, insurance and other expenses? must be covered by you.
Since they rent to you and you rent to someone else, I'm not sure about the depreciation. I am guessing that it goes to the legal owner of the property.
And yes this does affect their ability to buy another property since the mortgage is still on the books. To offset this mortgage they must show income by way of a contract from you.
Good Luck
Jim:-?
jcrnkovic....
How can I show proof of payment of the mortgage if they are moving/buying this new home in a few weeks?
Roy....
Thanks for the post,. It helps a lot but I still have a few questions for you.
How would I know if their mortgage assumable? Is this something that they would definately know or would it be on the mortgage contract?
The property next door that sold for less is similar to the one I am looking at, but it has many options? (I am not sure that having a lot of options is ideal for a rental.) The area is upper middle class, so I believe that the wood floors and other options would be appealing to someone that might want to do a lease option to buy. I am not sure how they came to the $192K asking price, but I believe that they refinanced four months ago and got an appraisal at that time. I also think that they looked at the townhouse that sold a few months back in the next building over and saw that they got $12K over their purchase price on year prior. I think that the area the proprerty is in is very appealing to purchase or to rent. Some other townhomes are renting out for about $1000/ mo in this area. I think someone that wants to do a lease option might be willing to pay a liittle more, but this would be my first property, so my experience is very limited.
You have mentioned trying to get them to agree to a land contract for their original purchase price ($179K) for 20 years. Can you explain your thought process on this? Why a land contract? What does this enable me to do? Why for 20 years?
How would I pay the $13K remaining balance? As a second mortgage?
If I then sell the house, why would I be making $13K-$14K profit if I do a second mortgage? I would really just be making the rental money above the expenses as long as I rent it. If my renter purchases it at the end of the option, why would I sell to him/her at my purchase price? I should negociate the price in the lease option contract when I get the renter based on increase in property value on similar properties. Am I on the same page as you, or did I miss something?
Thanks for all of your help!
Jen
You have many questions: But back to how to approach this retail deal.
What is your exit strategy? - You are buying high (retail) so we suggest this is a "buy and hold deal." The ARM financing will renew in 3 years. Leverage the low interest rate. I don’t know if your seller is motivated enough to get creative. Try a ‘Subject To’ (deed transfers to you) with the EXCELLENT financing (for investors) in exchange for their proposed retail price. Rent the home on an option for 3 years, with a purchase price not set until the home can be appraised in the 3rd year. As for the seller, the agreement with you for the payment of the mortgage subject to will show itself as the unit is rented. The new lender can take the agreement payments and use up to 80% of the payment against their debt ratios
Or
Sell the home on a Land Contract (deed remains in their name) yet filed with the recorders office, with payment terms extremely attractive to you.
Or
Obtain a mortgage for the amount due on the first mortgage and let the seller be in second position (with a note) for the balance due.
Eric & Rosa
[addsig]
Thanks for your post Eric & Rosa...
I am planning on doing a lease option on this property so I just want to make sure I am understanding you correctly. I sign a "subject to" contract with the current seller. In this contract, I agree to takeover payments of the mortgage?
Why will the lender only give 80% of the payment against their debt ratios? Would this create a problem if their new home is more money than this townhouse? Can you think of something else that I can do?
Why would someone sign a lease option with no purchase price? Isn't it better for the seller and the buyer to agree on the price up front? I understand that you can keep you options open without an agreed price, but I am not sure that a buyer would sign a contract without it.
Can you explain with more detail the Land Contract sceneario? What extremely attractive payment terms are you thinking of?
Thanks for all of your help!
Jen