How to structure this deal.

6 Replies

I have a lady that lives next to one of my rentals and she wants me to buy here house but continue living there as a tenant. She is 90 and doesn't want all the maintenance and would like to get her equity out of the home as it is paid for. What would be the best way. To structure this deal?

I would buy the house and rent back to her as a tenant. The issue is structuring the deal on no much you have to pay her.

Sounds like she is looking for a life estate but willing to pay rent.  Lots of complications possible.  How does she guarantee you'll keep renting to her possibly 10 years down the line and what rent will you be charging?  What do you do if she goes into a nursing home but MAY be able to return?  Does the home sit vacant?   Lots of elder issues here and you will always be the bad guy.

Thanks for the insight. Very valid concerns on this one. I was thinking we could sign a extended lease like 5 yrs or something. Not sure if it's worth pursuing:/

Here is a thought, use these numbers as examples as I don't know your market. 

Offer to buy the property with owner finance with some money down.

For example, let just work with these assumptions and you can adjust accordingly.

ARV: $100,000

And say she wanted $20,000 to do whatever she wants. So either you have this or borrow hard money at 12% (Payment of $200/month interest only). Ask her to carry the $80,000 for you in whatever terms you two can agree on.

Let's say rent in the area is about $1000/month. You can rent the property to her at market rent of $1000/ mo and consider leasing it to her month to month.

Payments:

You charge her $1000 for rent.

You have to pay her a mortgage for her seller carry loan (let say the payment is $800).

You have to pay $200 for the hard money loan.

When all the math adds up, she will either pay you $200 every month to live there, or give you $200 credit toward the principle. Then you use that money to pay the hard money loan. 

When you do your real calculations you will have to also consider taxes and insurance, closing costs and points. 

Hope this help.

@Vi K.  

Even if this woman agreed to a MONTH to MONTH rental there all kinds of landmines here for both parties.  He may never be able to rent the place while she is alive even though she is in a nursing home.  Who is going to maintain the property?  What happens when pot smoking grandson moves in with his pregnant girlfriend to "help" grandma? 

A reverse mortgage would probably be closest to fitting her needs.  If the OP is considering going forward on this I would suggest looking into the legal language of a reverse mortgage.

@Bob Bowling: I understand your concern for OP. But OP asked how to structure a deal like that, not to drive away from a deal like that. I'm a strong believer in providing solutions not problems. The OP asked how to structure a deal, I offered my opinion.

Who is going to maintain the property? Do you make your tenant maintain the property? If you did, then the same would apply. 

Pot smoking grandson move in with pregnant girlfriend? Does the lease specify who could live there? If landlord decided to allow that, then it's not our business.

Before you do any deal, you should always find ways to protect yourself. You should do your own due diligence. So I expect the OP to follow your instructions to find out potential problems in doing the deal. And yes, OP should get help from legal counsel to discuss the legal language.

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