My wife and I have been approached by her parents about purchasing the house that she grew up in and that we live in currently. The property itself has an older two family building on the lot and then a newer duplex attached by a breezeway (the city would not let them split the lot into two separate properties and any new structure had to be built attached to the old building).
Three of the units are rented to tenants, one unit is where my wife's sister lives, and my wife and I live in an unrecognized basement unit which is technically unrentable because it does not have a second egress point.
My wife's parents ultimately want to split all of the units into condos so that they can keep one for my wife's sister and sell us the older building with a chance to buy the third unit in the future. His one sticking point is always having one unit for my wife's sister to live in. Is there a way to avoid splitting the property into condos while putting in the sale agreement that the sister will always be able to live in her one unit?
Also her parents are interested in owner financing the deal, but they still owe $170,000. Would we be able to take out a loan to pay off what they owe, and then they finance the remaining balance. Can anyone provide any insight to how we could structure the financing through her parents/the owners?
Any help would be greatly appreciated.
@David Bellmont I just replied to your other thread with similar questions. Please review that answer on the Building piece.
On the loan piece, you can't borrow against the property unless you're on the Deed. However you want to structure it, (with them, without them, etc.) you need to be an Owner. After that, it becomes a question for the lenders, your engineers, and your team's credit scores.
@Steve McGovern if we're were to take out a loan with the intention of using the capital to pay off the rest of the loan that my in laws still currently own, making them free and clear owners, wouldn't they then be able to finance the deal on their own without anymore involvement from a bank?
@David Bellmont David, Maybe I'm misunderstanding you... but my return question is, what's your collateral? What security will the Lender receive to guaranty you'll repay the $170K? The usual answer to this is "Equity," e.g., it's a Mortgage, in which case you must be an owner to borrow.
If this were not the case, then-- literally, "I" could take out money based on the equity of "your" home. (And then I'd walk away, leaving you with $170K less equity than you had prior.... and facing foreclosure proceedings.)
I know a case of a professional doing something-- not exactly this but similar to this-- under the guise of a fradulent Power of Attorney. He lost his license, was disbarred, and was later even denied from being able to do"simple" Real Estate consultation. The rule may be there to protect all of us from the lack of scruples of some-- but in this case, it's also sound business practice.
So the options are:
--If you become an owner, then Everyone will be owners... then you can agree in a side-note to pay the $170K loan, but your inlaws would also still be on the Mortgage and would also still technically be liable if you could not for some reason.
--If they convey it to you, then they may be free & clear... but they will no longer own it.
--You can own it outright but let them live there under the tenets of the Life Estate that I indicated to you in the other thread... but they don't technically own it any longer-- they're occupants. (How that's going to affect everyone's taxes is another question for another professional... especially in the Brave New World that just passed Congress. )
Otherwise, you've got $170K in a mattress or tied up in some investment that you can use, or you've got enough clout that some or all of that money can be lent to you as an unsecured loan... but you can't borrow "against the house" without being an owner of the house.
Hope that helps.
@David Bellmont Yes, this is all possible.
You'll need to obtain financing to purchase all the properties... and you'll need skin in the game or a gift of equity. Parents will hold a 2nd.
Daughter can be left a life estate in her unit.
Clearly you'll need legal and financial assistance to iron all this out.
@SteveMcGovern and @tomgimer thanks for all of your insight. There is so much to learn and consider and your advices was really helpful. Unfortunately it looks as if we will be passing on the deal for now. My father in law seems convinced on splitting the property into condo if he is to sell. This was a great learning experience and we will keep looking for our first deal. I'm sure i will have many questions in the future. Again thanks for you help.
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