Dilemma... what to do?

Question

So I bought a fixer house for $40k and got a loan from the bank for $51k for the purchase price and fix up costs. I have about 57k total in the house. One of the folks I had working on the house has a daughter who wants to buy the house, but she applied and did not get a loan. I was going to sell it for 79k to her.

Since they can't get the loan, they want me to carry back the mortgage after giving me 6k down. I'm against this for several reasons, not the least of which I want to cash out and take 20 or so grand and move on, and because I won't have much cash flow if I finance her. The most I could cash flow on this house is $250 a month or so.

She can't do a lease option because she says she can't pay more than 600 a month. The market rent is around $750 which is what I'd want on a L/O.

I know the easy answer is to shoot down the idea and try to sell it outright, but I'm afraid I'm going to have a hard time telling these people no. But I gotta stick to my guns, right?

Anyone else been in a similar position?

Account Closed · Answer

I'm out of my comfort zone here, but if you did opt to seller finance, wouldn't you have to comply with the Dodd-Frank Act?  And if so, with the information you have, you couldn't finance to her??  Ask a pro about this, but if I'm correct, perhaps you could use that as your out?

Dan Simpson · Answer

Michael,

The Frank Dodd Act is one of the reasons I'm not gonna be into owner financing this lady or anyone else.

I was really hoping to sell this one in this deal but this gal has poor ratios and her mom, who was going to co sign, has credit issues related to some past medical bills so they got turned down.

It's move on time...

Colleen F. · Answer

Nope, you want the cash out. I would say to the friend  if you want to help your daughter get the loan why don't you do that but I really can't carry the note.   You don't owe him an explanation but I would just make it clear the proposal doesn't work for your business.

Chances are if the bank turned her down she just cant afford it.  If someone in her family can help her afford it that's great but it's not for you to do.

Dan Simpson · Answer

I know Brian, I'm going to sell it outright for cash. The ARV is not inflated. We're going to sell it on our own with no realtor.

If I were to do a lease option or rent, I'd go for 750-800 a month. That's a plan B. I want a cash sale though.

Brian Gibbons · Answer

@Dan Simpson

You have 57K in a house that is worth what ARV? 79? or is that inflated?

It costs 10% to sell w agents fees and closing costs and negotiation.

Then you pay tax on profits.

Why are you a soft touch w $600 rent?  Do you want sainthood?

This is a BUSINESS, not a CHARITY.

Michaela G. · Answer

Maybe figure out what it is that kept her from getting the loan? Could be as simple as her having maxed out all her credit cards, which lowers the score dramatically.

She could take some of that 6k and pay down the cards and then get and FHA loan with 3.5% down.

Maybe it's something else on her credit report that's wrongly reported. Some creditlines are really bad about re-aging tradelines, when they should have fallen off.

Find out and see, if it's fixable.

Charlie Fitzgerald · Answer

No thanks...put a fit sake sign in front of it and get it sold.

Christopher Brainard · Answer

@Dan Simpson

There really isn't anything I can add to your post - you already know the proper answer. You're going to have all your cash tied up in this property, getting below market rent, and in the end, you won't even own it. Bad deal for you all around. Great deal for your 'friend'.

-Christopher