Hello all BP friends,
I am a newer investor and currently own a duplex and self manage. The situation below is in Westland, Michigan area.
I have a possible deal with a friend that is wanting to buy her first house, however she is currently in school and cannot qualify for financing.
I have structured a deal that I would buy a house for her, under a 5% conv. Loan, where she then rents from me, covering all expenses plus a 200$ cash flow each month. However she wants the buy back the house a year and a half later when she finishes school and able to qualify for financing.
The house will be around 200k. I will need around 11-12k cash at closing. How much equity will I accrue after the year and a half? Plus the $3600 in cash flow over 1.5 years. Is this worth it when I go sell the house after a year and a half? I have also structured the deal where if Market crashes she has to buy the house at what I paid for it, but if not she will buy it at market rate.
I appreciate all of you and your time on reading this! Please advise. I will gladly answer any questions if my post was not clear enough.
Stay healthy and wealthy, my friends!
This deal doesn't sound right. First, the first 18 months equity you'll have will be around 5k. Secondly, plus the cash follow still not able to recover your upfront cost. In other words, unless it appreciates significantly which Westland that I'm familiar with likely will not, it's a bad deal.
If that's a friend you wanna help, introduce her program like home partner will be good enough
Thanks for taking your time to reply Ryan.
So yes upfront I put up 11k out of pocket( that is with seller paying a max 3% concession). So my initial investment is 11k. And after year and a half I can only pull out the equity portion is that what you’re saying? Plus cash flow would only total about 8.5k, not including minor appreciation.
How can I turn it into my favor? Are there any creative seller finance deals I can set up?
Would I not be able to pull out the down payment at the time of sell as well?
Yes, down payment will be part of the return when you sell. I should be more clear that the 5k is the increasing equity from the paid principle. A good way to make it more profitable is to delay the buying option a little bit later. You can make an equity flow spreadsheet to find a good margin that you can accept then determine the date.
@David Niu You mentioned in your first post, that you were going to get a conventional loan with only 5% down. Are you planning on owner occupying the home, to get such a low down payment? Since conventional agency loans for SFH investment properties are at 15% down right now.
Conventional loan does not require me to occupy the property. I just wanted to pay as little as possible upfront. Of course with 5% down my PMI will be higher.
Not sure about your market, but I’m almost certain you can get lower than 15% down.