Buying a house from a friend

7 Replies

Hello all,

I have a friend that is currently looking to sell me his home.  Long story short, him and his wife are looking to move out west and he wants to sell me his home.  The house is in fantastic condition, renovated in 2011.  The plan is to buy it from him, then rent it back to him until they are ready to move in early 2015.  Upon their exit, I will then re-rent the home.  

Financials:

Purchase price: $285,000

Rent: $2,200

All financial analysis aside, how best should I go about this? Conventional financing or maybe work out a lease to own or seller financing with him? His current mortgage+PITI+HOA is $1930 but I could probably get a better mortgage due to lower interest rate then his 4.75.

Just looking for some general suggestions on my options... Thanks!

Non-owner occupied interest rates can be significantly higher than the best owner occupied rates, so it's safer to assume your refinanced rate would be higher than 4.75%. So your mortgage +PITI+HOA would be closer to the $2,200 rent level. Factoring in reserve for maintenance and other upkeep, you'd probably be breaking even at best.

I'm thinking "Subject to" the house, continue to rent it out to him until he leaves, then wraparound mortgage the house to a new buyer.  It's in a very desirable area and it wouldn't take much to sell it next year.

@Shayne Brescia  What is your end goal with this?  What are you trying to achieve?

Unless you are playing appreciation and are getting a great deal on the house, I don't understand where this makes sense.  

Well the profit would come from selling the property to the new buyer in 2015.  A lease option with a down payment up front and some appreciation.  

What is it worth now?

What is the rent to PITI ratio?

What is the condition/location now?

What is the existing financing?  age of note, payment, interest, arm or fixed.

These are big issues with either cash offer or a terms offer.

Do not pay retail ever.

Look at a lease option assignment and make 3% today.

@Shayne Brescia  So your 285k purchase price is well below market?

- Rough numbers, you're bleeding ~1k/mo cash flow renting it (50% rule)

- You'll be paying closing costs when you sell

- You're betting on values appreciating

If the above costs, less your selling price yield a decent delta, there is your deal.  However, you haven't been clear if 285k is retail or below market?  

Originally posted by @Shayne Brescia:

I'm thinking "Subject to" the house, continue to rent it out to him until he leaves, then wraparound mortgage the house to a new buyer.  It's in a very desirable area and it wouldn't take much to sell it next year.

 If this is a friend I would make sure if you resell the house "subject to" that you will not be tying up there credit and keeping them from getting a new mortgage when they move.

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