I have a childhood neighbor who is ready to sell their family home. I think he has some alcohol/drug problems and needs to sell right away (there’s been multiple family deaths due to old age/illnesses in the house that he says is beginning to haunt him & financially he’s barely holding on). But he hasn’t found anywhere to live. He’s trying to find housing in a senior living facility which, will take about 3-6 months - maybe.
I am being fair with my purchase amount but don't want to put the guy out on the street. He asked if he could live in the house for 6 months until he finds a place to live. Additionally, I will not be ready to begin repairs (converting house from SFH to duplex) for about that long, so it keeps someone living in the property to prevent vandalism. Win:Win for both of us.
However, I don’t want to later have an issue trying to evict him if in 6 months he still has no where to live and probably will have spent all the proceeds he received from the sale.
Is there anyway I can write in the contract allowing him to stay for 6 month while having the title company hold in escrow a portion of the sale as a stipulation for him moving? If so what would be a fair amount to withhold? After all is done he will probably end up $20k - not a lot in Philadelphia,PA but at the same time it is a lot for someone with his issues.
If my idea isn’t the best please offer any suggestions. Trying to avoid eviction headaches.
Make sure you have a lease in place, charge him market value for the rent and you could see if you are able to hold some of the money in escrow to ensure he's out in 6 months. For it to be his family home for such a long time and he's only going to way away with $20K doesn't sound great (though maybe it is an inexpensive house).
Have him lease-option the house to you. Agree on the price today, and you can buy it any time within the next 6 months for that price. You give him a nice hefty option fee ($5,000?) so he's not "struggling" financially and can get moving into his new place. You pay a token rent; just enough to validate the contract as legit.
Also, he gives you a lien on the property for $5,000 to protect your interest/option fee, which would be released if you chose NOT to exercise your option.
Whatever you do, don't let this go beyond 6 months. It doesn't take that long to get his affairs settled if he's motivated. If he's not motivated, you'll still be on square 1 in six months and he won't have done anything to get this deal moving. You need an easy out.
Better be a screaming deal to go thru all this extra trouble. Having someone with alcohol/drug problems as my tenant would not be my first, second, third, or fourth choice.
And as always, be prepared to take the final step if he does NOT move. If you are not prepared to evict him should he fail to live up to his end of the deal, then don't do the deal.
@Nicho Pruett . I wouldn’t do this. Likely he will not leave in 6 months and you’ll have to evict him. Buy it now and have him leave. I understand the “not wanting to put him on the streets” part but I can guarantee you if you buy it and let him stay you will be left holding the short stick as you evict him.
I am just now evicting a tenant. Do you know how many times they have said they’d be done by a certain date? By my count 3-4. Only an eviction makes it official.
I have done this with this same exact scenario (except for the dollar amount). I bought the house, held enough back in escrow to cover x-amount of months rent, plus y-amount for time and legal fees for eviction (should that possibility occur), plus z-amount for potential damages (once again, should it occur). Plus, I put in the lease ends in #-days and if the tenant stayed longer the rent automatically went up to $$$ per day (as incentive for him to GTFO should he get too comfortable).
The contract was also crystal clear that I would deduct any and all fees from the escrow holdback and then he would get the difference after he moved out.
PS, have a lawyer draft this for you since you need to comply with landlord-tenant laws in your state and there a lot of moving parts to this sort of addendum.
Final thoughts - I love offering this option to people when buying a house. They don’t feel rushed and get their money fairly quickly.
I don’t know if I could do this deal. The lease option suggestion by Eric Whitting sounds good, but it also sounds like it could get complicated as emotions mount over the six months, and I may have some problem enforcing an option on a “childhood neighbor.” I would be more likely to offer him a price today that will be good for 30 days, and after that when he decides to move out I revaluate the market and his house a make another offer.
I was after a house for 3 years.. when the owner was ready to sell, he also needed senior housing. He was told the waiting list was 1-1.5 years. It ended up being 2 months, but it could have been a lot longer. I’d tread lightly with this guy, especially if he has issues, and a check for $20k he can blow in a month.
Your obviously asking becuase you want to do right morally with this person. But business is business. Ask yourself this, would you take any other tenant that was in a bind and had drug/alcohol issues and not financially sound? Too much could go wrong. Explore other options on how to buy, and immediately move them out.
@Nicho Pruett . Why not look for a new place for him? You could pay first/last as you close. Removes lots of problems for you and the seller and if it goes to hell—which your gut is telling you it probably will—that’s on him and he has already moved from the childhood home which is a real emotional barrier.
It's called a Lease Back Option and a very common in real estate transactions. It is typically around 1 month when the seller is transitioning to the next place but just have your attorney draft up the paperwork and it should be ok.
You can have him pay what your mortgage amount is for his tenancy. I think that's a reasonable compromise.
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