Hello BP,

I want to see if anyone could point me in the right direction or offer insight on something I'm trying to help an old friend out with.  This situation isn't one I'm looking to profit a dollar from. But if the type of investor exists that I think may, I'd like to connect them or know where to go find them. I'm trying to help a friend navigate a creative loan to buy his current rental house and capture some 'free equity' while keeping the stability in his son's life that he has worked so hard for.

Brief backstory:  I've known the guy since middle school, never really close friends, but we've stayed in touch through Facebook over the years.  He's got a bit of a rough past, basically raised himself from a very young age, served some time in prison, not sure if he's finished high-school, etc. However, he's kept himself out of trouble, for the most part, for the last 7+ years and is the only stable parent to his son, who he has with a woman he's no longer with but often interjects drama into his life still (police calls, charges that get quickly dropped, etc). He does everything for his son that he never had himself in his life. I have friends from school who had it much better than he did and have completely blown their futures by this point (we are all in our young 30's). His future was already 'blown' in many opinions before he even got started, but he's built himself a pretty solid existence from the ashes.

  His young son's got a "work station" at his shop and is his "right hand man".  When he's put up adds on FB for roommates, he demands absolutely no drugs, partying, or drama since it is his son's home. In the past few years, he has built himself up a thriving custom car audio shop out of a shop rental space in a warehouse park.  His work is the type where they put excessive sub-woofers and flat screens all over show vehicles, turn a Suburban into a 2-seater with 9 feet of 47billion watts worth of subs, wrapped in flowing body-colored fiberglass with computer controlled LEDs, and make golf carts thump while they cruise car shows. Way way over the top type stuff for most people (myself included), but he is bursting at the seems with customers and is a great business man. Before this business he would buy wrecked Yamaha R6 motorcycles and disassemble them in his garage, selling every single piece, part, nut and bolt that wasn't damaged, individually at swap meets and online.  He's always had that 'hustle', it just took him some years to apply it to legal endeavors like motorcycles and car audio, haha.    With his type past and his likely clientele in that business, his income is almost all cash and unreported (it is what it is).  He doesn't know his credit score and hasn't used it for anything in years, didn't ever plan to, he buys cars, pays rent, and everything else in cash.  However, he's been renting the same house for 7 years and was just recently told that his landlord is planning to list it for sale.  The landlord mentioned something about selling it to him for $120k or listing for $150k, but he can't get a loan and by now, equivalent rentals are a lot more than the $950/mo hes paying.

I think the landlord was knowingly offering him equity but I don't think the landlord wants to seller finance. Despite the rental history, I know my friend wouldn't be one that buy and hold investors would jump through hoops to rent to: he's tattooed up, has a criminal record, and no proof of income (likely no evictions though! haha). But I think his hard work and rental history is at least enough to see if he's got a chance to actually own an asset with equity and continue paying on the note. Banks probably wouldn't touch a loan with no income and questionable credit, and a true hard money loan wouldn't be appropriate since he's not buying it as an investment. However, after running a CMA, the house that his landlord casually offered him for $120k is likely worth closer to about $150k in its current condition (new AC put in when the old one broke two years ago, everything is solid but dated, I think the house was built in the 90s). If he did a light cosmetic flip, ARV would be closer to $170k, slightly larger homes in the area have sold for $190-200k recently. Those also aren't numbers that will have flippers jumping through hoops to buy it at, but my friend still has a potential opportunity of not moving from his home of 7 years, AND capturing $30k+ in equity.  

I don't have the capital to lend him, and I know most private money and hard money lenders are in it for the higher margins on short term loans.  I know there are note investors in it for a longer period, but they are buying existing non-performing notes at a discount, making them perform, and then selling or holding. 

Are there investors who will make longer term loans for owner occupied but sub-prime borrowers like my friend? I would imagine it would cost a a few points up front, and carry an interest rate higher than a traditional mortgage. However, I think if I could find him a loan at, say, 8-9% amortized for 30 years but maybe with a 5 year balloon, it would give him some time to fix his credit and either refi to pay off the loan or fix and flip it to have some money down on the next property. Even $120k at 9% for 30 years, P&I would be in the ballpark of the rent he currently pays. If higher interest, maybe it could even be interest only for a period to keep his payments manageable and he'd have equity before any principle pay down. I'm sure he could afford a bit more by now for taxes and insurance, but his landlord hasn't raised rents so he hasn't had to. His credit likely sucks, but if the mortgage payment came out to within $100 or so of his rent payment that he's paid for 7 years, I would think that rental history would be good for something, showing that he would likely continue to pay his housing payment. If he got in a bind and had to sell, or if the lender had to foreclose, there's equity there, much more so than I had buying my house in 09 with FHA, first time home buyers credit, and zero out of pocket.

So while I'm not offering to personally loan or to guarantee the loan to help this friend out, I hate to see someone who's worked hard to climb out of a rough past not be able to take an opportunity to capture some equity and an asset by buying a house he's already paid $80,000 in rent to live in. Numbers wise, it seems like there could be an investor looking for a moderate-term passive investment for 8-9%, but maybe I'm off base.  What do you all think? What would you call that type of loan? 

 Being that it's a tenant buying from a landlord and the numbers are tight, I wouldn't feel right putting my self between them as a Realtor making 3% UNLESS the landlord lists the property on the market in which case the seller is going to pay the buyers side to either me or his Realtor.  In that case I'd represent him as the buyers agent and the financing side would be creative.  Otherwise, I'd rather him just be able to get the property for as cheap as possible to stay in it another 10 years by me getting him the phone number or email of the right person. 

Thanks for any insight!