I have 2 friends that are having a hard time buying a home, is this an opportunity for a new investor?

7 Replies

I have 2 friends that are having a hard time buying a home, is this an opportunity for a new investor? What I mean is, can I help them find and buy a home and also help myself in investing in my first property? I know they are having a hard time proving to the lender that can make the payments. I am thinking of finding a property for them and ask about owner financing as a lease with an option to buy and lease it to them and then sell it to them after a year, me being the middle man. I am very new to this and just thought I would ask the question. 

@Robert Hidrogo

Before getting into any details, I am already hesitant for you. If they cannot prove to lender that they can make payments, then what makes you think they will pay you? Because they are "friends"? Do not know your friends at all, but it's funny what money can/will do to relationships. This may work for you, but I would be very cautious.

Good luck!

I will say that technically you could make something like that work, but as many people will warn you, working with friends or family can be a very bad choice. Not saying it always is, but it seems more often it is. I guess the question is, how much does their friendship mean to you?

When you write this:

I have 2 friends that are having a hard time buying a home, is this an opportunity for a new investor?

along with the rest of your post, I see

I have 2 friends that are having a hard time buying a home, can I make some money off them?

Because that's the bottom line of what you're asking.  Can you?  Perhaps.  But if they're your friends and they're struggling financial, do you really want to do that?

@Robert Hidrogo

Working with friends and family can be tough, but it can also be highly positive.  Educating people is the toughest part of dealing with anyone.  We are all so sure we know it all that the general reaction is to reject info/advice/education from anyone, even close friends.

I would think you should formalize the relationship as a Realtor. Get your license and represent them on a contract. You can spell out exactly what they need to do vs. what you need to do as their professional realtor. It also gives a set of boundaries defined by someone else, the MLS, that prevents you from taking certain actions that a friend might.

I agree with

@Josh Mitchell and 

@Dan Mackin for sure, you would definitely want to be cautious. When Dan is asking about how important the friendship is to you, what that really means in my opinion is, is they don't pay can you see yourself evicting/foreclosing on them? My perspective is, if they don't pay their obligation to you then they are telling you how important the friendship is to them and you could evict them. If I went to help a friend out like this, that is how I would view it and the expectations would be set UP FRONT, before we even got into the deal.

That being said, people do owner financing every day, so if you found a deal you might be able to act as a wholesaler and collect a fee to work the deal.

If you were to buy it and finance yourself you wouldn't be able to easily sell it to them by you financing them yourself because of the "due on sale claus." How ever if you bought it cash you could do that. Yes, there is a reason a bank won't finance them so what make you think they could pay you? There is all sorts of reasons people can't get financed I imagine, find out their situation. If you did this they would put a down payment on the house, you would have a secured asset, so even if you had to foreclose you still have the asset.

Keeping in mind you would ALWAYS want to have a clear exit strategy or two or three or four! :) You would want to make sure the house was enough of a discount to rent, re-sell on market, or move into yourself. I am sure you can come up with more but those are off the top of my head.

One thing I did not mention because I haven't learned much about it is, a lease option. I imagine that would fit the criteria where you could finance with your credit, lease it to them with the option to buy at a later date. This would not mean the house is sold until that date so the "due on sale claus" would not kick in. This would give them time to secure financing or work something else out. "Subject to" is a possibility but from what I have heard it is a nightmare.

More important than anything about this post is that you are thinking creatively! I think that is one of the best exercise for newbie investors! I am very new as well, so I would say verify that strategy you chose with legal counsel. A good start to see if it is possible is finding a great deal! There is a webinar on Thursday about 10 ways to find a great deal, I would recommend you check that out.

Best of luck!

Lease options are not for people in Texas that have problems getting mortgages.

If they have a problem getting a mortgage, use a ROFR or right of first refusal,, and a lease,  not an option and a lease

Then send your friends to a mortgage loan originato with a 1003 mortgage app filled out

This way the mortgage loan originator can tell them the truth about what their problems are, debt, income, final score, time on the job, etc.

It is tough to get a mortgage today, and you don't want to be advising friends about how to get a mortgage if you're not in the mortgage origination business

You can make money by helping your friends pay your mortgage down over one to two to three years, then buying the house from you at a profit

The ROFR is not seller financing or a lease option which makes it possible for you to do many of them in Texas without Dodd Frank or deal with executors contracts

I have written about ROFR's here on BP, search in the search bar

Good luck!

No matter which instrument you use to conduct business (and I agree ROFR is they way to go) my advice is to keep the emphisis on it being a business transaction. That way the exit strategy is not a personal choice. 

Licensed mortgage originators have their limitations. First, unless you have a good relationship with one they do not like taking applications on folks they can't approve now. It costs them both time and money (there is a cost to them running a credit report). Secondly, they can only give you a decision based upon the prospect's current situation, most notiable current credit score. When you use www.screenthetenant.com you will get a full debt to income ratio analysis which is what you indicated their problem may be. They will let you know how much income they need to show in order to qualify, based upon their debt load and in consideration of the new home payments. Finally if their credit could use enhanced they will take care of that also. 

Did you know that underwriting has more tolerance for debt load if the client's credit score is higher? The $50 cost per applicant can be paid by the buyer and you will receive the reports and analysis.

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