Would like to do rent to own. How do I approach the sellers?

[Aja Yasir]

Hello.  I found a single family home and a duplex today that I'd like to put offers on.  One is a single family.  The owner is moving into a nursing home and medicaid is pretty much forcing him to liquidate his assets.  The other is a duplex.   The owner passed away and the heirs live out of state and are trying to sell it. I'd like to do no money down/rent to own deals but I'm so confused about how to approach the owners with that idea.  Husband and I put an offer on a 14 unit last week and it was rejected.  I know it's a numbers game but I want to be able to really make the offers sound good although they're no money down/rent to owns. 

[Clay Lingg]

My recommendation is only limited to the single family home because of the unique advantage the sellers situation provides for you. I'll preface this with saying that I'm an attorney in Pennsylvania, so you ought to get legal counsel to confirm this in Indiana. Now onto the analysis, assuming for the sake of conversation and, simple math, that the SFR is valued currently at $100,000. Furthermore we'll assume that the seller's primary goal is to make sure that the seller's time in the nursing home is paid and care continues.

Approach the seller with the proposition that you can purchase the home while ensuring that the seller can still receive Medicaid benefits. How? By purchasing the property for $50,000.00, Medicaid will take issue with the transaction since it is $50,000 less than the fair market value of $100,000.00. However, instead of simply giving the seller $50,000, you follow this advice and put that money into a Medicaid Complaint Annuity. I don't sell these but typically go through Krause Financial Services. Why all the extra work? By purchasing the property at half price, you already have $50,000 in equity in the property, making a loan from a bank much easier for the remaining $50,000 purchase price. Furthermore, by putting the seller's $50,000 into a Medicaid complaint annuity that pays for 5 months ($50,000 gift of equity divided by the average cost of a nursing home $10,000 = 5 months), you can ensure that as soon as the annuity runs out, the individual is eligible for Medicaid, which we addressed earlier is the seller's primary goal. 

Depending on the appraised value of the property, the seller's income, and prior gifts, purchasing a property for 45%-50% of the value leaves significant margin in the event there are family members who may want a piece of the proceeds from the sale. If you do approach an attorney then you can summarize this by asking about half-loaf gifting. Hope this helps!