Deal Structure

1 Reply

I have a friend/acquaintance who's thinking of selling her home because her husband is unemployed and their savings is dwindling. This home value is approx. $265K and they have a mortgage balance of $239K with a payment (PITI) of $1,950 . The home is immaculate, in a desirable golf course community and should sell fairly quickly, but would basically leave them with little $$ after the real estate commission and selling costs are paid. And, of course, they'd have to move rather quickly when the home sells.

They have a son who is a Junior in high school and they would like to stay in the home another 12 months until he is graduated. What I'm thinking is an offer to buy the home at the current balance ($239K) under the terms of their existing mortgage and lease it back to them at a more affordable payment (let's say $1,250) monthly for the next year. They can afford that on her salary alone. I'd be making up the difference of $700 monthly or a total of $8,400 over the 12 month lease. Roughly $350 is paid on the principal of the existing note each month, so my net cost would be approx. $4,200 over the year. At the end of the year, they'd obviously have to move and I'd own this house (under their existing mortgage). I'd like to keep it that way for 3-4 more years while I either lease the property to someone else on a lease option, or possibly sell the home outright to recover my investment and hopefully a little profit. My fallback position would be to purchase the home myself for my own personal use, but then I've tied up approx. $50K to obtain traditional financing. I'd like to avoid that if possible and keep my cash and credit for other investments.

I currently own 5 investment homes, 3 of which have mortgages. To date, all of my property investments have been traditionally financed. As noted, I'd like to do something a little creative here to keep their existing mortgage in place for at least a few years but secure ownership either in my name or my LLC. I'm thinking the proper deal structure would be a land contract or land trust with equity interest assigned to me to secure ownership, but leave the mortgage in place. Could anyone please provide a recommendation on how to approach this? There's not much margin in it, and it's more of a favor or good will gesture, so I want to make sure I minimize my risk going into this.

Thanks in advance for your thoughts and suggestions!

If the house appreciates at 3% over the year and you sell it after selling costs you should net $253,844. At that time your balance will be $234,800. I don't know what the payoff amount will be. Your net difference is $19,044. Your payments of $8,400 would have a value of $8,796 assuming a return of 10%. Your net difference after 1 year is $10,248. This is not much considering the risk that some of the numbers are wrong. Keeping it 5 years or so may work depending on how much you could get for lease.

Good Luck.


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