How To Buy Friend's House With Low/No Money Down?

12 Replies

Hey BP!

Have a situation I am looking for advice on:

A good friend of mine, who lives in the Bronx (NYC area) is selling his house. He's desperate to sell. It's a duplex MF, a one bedroom apt on ground floor with driveway (no garage), and a three bedroom on second floor. His current mortgage is about $2K per annum, rent from 1st floor is $1K, and I'm sure one could rent the top floor for close to $2K (appliances are from early 2000's)

He hasn't even officially hired a realtor yet, though one is in the wings, she'll have hard numbers for me by Thursday next week. Right now, he wants to sell the house for about $420K (It's extremely close to trains to Manhattan, and bus to White Plains).

He needs to sell yesterday, so I am trying to research how to do that, without it hurting my bank book. Perhaps I go about assembling a team of investors who would buy the house and fix it up for rental (or resale)? Is that even a good idea?

I guess I am seeing it as a gold opportunity to segue into REI, but as ya'll know, funds are tight on my end.

Looking forward to hearing ideas. Or the cold hard truth. Whichever :-D

Take $100 and him to the nearest bar. After several drinks have him sign a contract that benefits you.

Just kidding, could you get it subject 2 the existing loan, just take over the payments. I am by no way an expert but I'd sure give it a shot. Worst he can say is no, right? Or if the numbers work out see about wholesaling to an investor. No idea, 420k buys a whole lot house down here.

Ha! That is one way of doing it..

Taking over the payments would really not be beneficial to either of us. He wants to make some kind of profit so he can buy a small apt, and I don't want to pay rent on my own apt and a second mortgage. Yikes.

Just principal and interest on $420k would be about $2k a month. If you can only get $3k out of both floors then I wouldn't touch that house.

I too fail to see how the numbers make this a profitable buy and hold.

One number that's missing from your story is how much it's worth - or how much you think it could sell for.  You said he wants 420k.  That's nice - is the place valued at 350k or is it valued at 580k?

I'm going to make a huge assumption and say that what he wants is probably either well above - or close to - market value. I'm not getting the vibe that there's a lot of meat on this deal. Lets say though - If you DID "put together a team of investors" and rehabbed it, what's your ARV?

What the #$%& kind of realtor takes over a week to do a comp analysis and come up with a suggested list price?  Your buddy wants to sell yesterday yet he's willing to wait a week for something that an assistant can pull together in no time at all?  Pfffft.

Since you don't want to buy it (which is confusing in and of itself considering the title of this thread) why don't you convince your friend to give you 3 weeks to get licensed.  Take an online course, take the test, get your license - you'll pay 2.5-3k out of pocket and the day you are licensed - bam! you get your first listing.  You sell it at his desired sales price of 420k, at a 2.5% commission rate, minus the brokers fees and you'll clear enough to cover the cost of your license, pocket a couple grand, and you've broken into RE.  Win win.  It's like wholesaling but...  not.  ;)

Hi @Heather Jones

That is actually an idea I was considering, regarding getting a license, and using it as my first listing. The value of the house would be around $450K, but then again, I am going by what he said the initial estimate was when he purchased it back in 2005. It's in a part of the Bronx that is seeing revitalization, so my assumption is that the value is at, or more than that, price. Also he did a renovation back in 2008, revamped the appliances, plumbing, and wiring.

As for the realtor, when I spoke to her this afternoon, she said she has been trying to sit down with him and hammer out numbers so she can officially list it, but he has been dodging her appointments. Knowing this guy for the past seven years, he does have a habit of making and rescheduling appointments. Even if it's to get his car washed. Go figure.

And yes, my idea was to buy the house from him, crank up the rents a bit to more market rate (3 bedroom apts in NYC go for over $2,300) and startup REI with that. Hopefully my post wasn't confusing.

It's not your post, it's the whole situation that is confusing :)  Your friend is desperate to sell yesterday, but dodges his realtor... who somehow you are involved with (why do you call his not-even-realtor about his house?) yet you are considering getting your license to swipe what she probably thinks is her listing ;)  

You say you want to buy the house, but you don't want to pay any money down AND you don't want a mortgage...   not sure what kind of suggestions are looking for to make THAT work... that's all :)

Hi @Heather Jones, you're right. I wrote that post on my way out the door from day job, and I think I skipped some pieces of info because I was in a rush.

So, he told me he was putting the house on the market...and been saying that for a month or so. Finally, he decided to hire a realtor. I let him know that I am starting to network with folks in REI who might be interested.

So, he gives me the number of his realtor.

I call her, asking "Hey, if I could get someone from Jersey or PA or NY to close on the property, would you be interest in say, tossing over a finder's fee?"

She agreed, and at the same time, when I asked her about the numbers (how much property tax, square footage of the house, of the lot, market value in that area) she said that she had not officially met with him to hammer those numbers down. He had just gone to her and said, "I need you to sell my house". Their meeting is supposed to take place Monday or Tuesday next week.

So then I hung up the phone, and I said to myself...hmm...what if I bought the house and broke into REI and rentals that way?

Now, I didn't want to just take over payments because his payments are about $2K per month. The first floor apt is not rented yet as there is some fixing up. And, I am a bit tight with extra spending money. Partner and I don't want to touch our emergency fund for this...

On the other hand, if I offered to take over the payments, I know HE will balk at, because he wants to make a profit off the house. For example...he has about @200K left on the $450K he owes the bank when he first bought it. He wants to see it for about $400-430K, leaving him about $200-230K. After brokers fees and other costs, lets say, a conservative $150K (low end, prolly much more) He wants to take those funds and buy a small apt in the Bronx (which can go for about $100K or less). If I say "Hey, let me take over payments" he won't get a dime, and that will kinda torpedo his plan.

Just a bit of background, I known this dude for years. When we first became friends, I was fresh out of college, trying to break into IT, so I rented a room from him. In that very same house. He's in dire financial straits at this point, and I'm trying to see what I can do that will a) help him out, b) help me get into REI....

Just to be clear, I do realize I have to pay a mortgage (dunno why I replied that I didn't want a mortage before...musta been a rushed response) LOL.

Thanks for reading all of this :-D

He's in dire financial straits at this point, and I'm trying to see what I can do that will a) help him out, b) help me get into REI....

Sounds like a motivated seller to me. Now you have to bust your tail to study and research that. You have a solution for his financial problems, it may not allow him to pocket 150k - 200k, but it is a solution. Listen to podcast by Michael Quarles, Jerry Puckett to name 2. Search motivated sellers. Just shooting off the hip you could possibly offer him 250k and wholesale it for 270k or he could list with the agent, pay commission, pay the mortgage until he sells, keep paying utilities, maybe it will only sell for 80% of what he wants. See where that's heading? Again I know nothing of your area, but you could probably network with plenty of locals to make something happen.

There is a wealth of knowledge here for those willing to dig.

Good luck and get it done!

From the picture that I'm getting from reading everything you posted here, I would probably suggest you just sit this one out. I personally don't see anything in it for you but a possible headache. First of all the numbers don't seem to add up like I suggested earlier. If the rents would total 3k/month when the PI alone is $2k then add TI and all other expenses you will be hemorrhaging money from day one.

Second you don't seem experienced enough to jump into a $400K+ property, especially when you say that you're tight on money. If you're having to ask the realtor about easily accessible things like property taxes and square footage then you need to learn how to do some due diligence.

Last, your friend doesn't truly seem to be motivated....If he were really pressed for cash and had a house with $200k equity in it he could easily sell it for 20-30% off market and still profit.

Your on the right track wanting to learn but one thing you can't do is "make" everything work. Keep learning and keep your eyes open you will eventually find something that makes sense.

Hey @Chris K.

 thanks for taking the time to give advice.

After considering it a bit more and running thru preliminary numbers , I am most likely going to sit this one out. 

Purchase $420k

Down payment $0 

Insurance  $2k

Taxes $4750. (1.125%)

Mortgage payment of $2627.00 ($420k @4.25)

$3000.00 rent income minus $2627.00 = $373.00

Vacancy 5% ?? $150.00-$373.00=$223.00

Repairs $$ ?? 

I have a $750.00 rule. If i don't have the possibility of at least $750.00 Positive cash flow 

Its not worth it. 

Ok, "make it happen" was a poor choice of wording. But sit this one out, that guarantees only one result: absolute failure. Take some kind of action. Even if there is no deal to be had, this is an oppurtunity to educate yourself and fan that little spark of motivation into a raging inferno.

Here's what I'm speculating. Your friend has a non performing property, most likely robbing Peter to pay Paul. If isn't late on his mortgage he soon will be. He's in denial, as most that face financial problems, thinking this agent will get him top dollar, he gets 200k + and all his troubles are over. Now he can go buy an apartment building he can't manage, well because, and get right back here in a few years. 

If nothing else you have what, about 96 hours before the agent gets there? Plenty of time to listen to podcasts, read and learn something. Sit your friend down and dig, then dig deeper. Taking no action equals one result. And then you'll be sitting out the next one and the next one. Do something!

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