Is this a good deal for a private money lender?

Question

Need opinion on deal I'm trying to structure.

Seller has a house that would easily sell for $89,900 AS-IS. She doesn't want to sell outright, but she has to do something because she owes about $20,000 in property taxes. She wants to keep the house in the family if possible. Owns property free and clear. ungrateful grand kids currently live there but not much longer. We came up with this plan...

I loan her 20k (need private money deal) to pay off the 20k property taxes, and she will quitclaim the house to me. She'll make monthly payments to pay me back in approximately 5 years, and in the mean time I can rent the house out (would rent for around $900) and make money that way. The real kicker is she will sign on the agreement that if she fails to repay me in full in the agreed amount of time the house is mine free and clear! She is 80 years old so I said, "What if you should pass away?" She said, "If I pass away before then I will agree in writing that the house is yours." Whoa!

She just wants a chance to keep the house, and if she can't or misses payments I have it covered with the amount of rent that's coming in. Does this deal sound good or what? Any comments or words of wisdom? I haven't sought private money yet because I don't know if this is something they would even consider.

Michael Lerch · Answer

I don't think it's a good idea to do a quit claim anymore. It makes much more sense to just buy it and do the option/first right of refusal. This way I close at a title company and get all the title stuff figured out and insurance. Good to go

Michael Power · Answer

Maybe I am missing something.  But, if you Quitclaim the deed, is the owner not giving up claim to title on the property.  You would essentially be buying the home for $20k including the obligation to settle all liens outstanding which cloud the title.  You know of the deferred taxes, but what else?  A title search is a definite. The owner no longer has claim to the property...hence Quitclaim, and the 'buyer' acquires whatever interest the 'seller' has at the time of the transaction.  There is no warranty and hence no recourse for you if the deal sours afterwards.

A private money deal may be difficult to have as you would be transferring all of your risk to the lender as a clouded title makes for poor collateral.  $20k is a relatively small sum, but a lender may want a significant lender fee to cover that clouded risk.

I would look for an alternate method of acquisition.  It's a stellar deal, so find that win-win combination and make it happen.

Mike P.

Roy N. · Answer

Yes ... if he stays to 106 then we'd be in a tight spot ;)

Roy N. · Answer

Michael Lerch @Brandon Turner

A slight deviation on the topic:

We are looking at something similar at the moment.  The owner is 97 and, and as he put it, only "plans to move once more and he won't need to carry anything".

What we are putting together is we buy his house from him now and grant him a rent-free right to live there for the remainder of his days ...

The property is what we would be after ... it's all hinging on the municipalities willingness to entertain a zoning exception.

Michael Lerch · Answer

Roy N. I guess you just figure holding costs for a couple years?

Michael Lerch · Answer

That makes a lot of sense. Much cleaner and I think it would be easier for a private lender to understand.

Thanks :)

Brandon Turner · Answer

Hey Michael Lerch sounds interesting. I feel like there might be a cleaner way to do this though to accomplish the same purpose. Maybe you could just plain and simple buy it from her for $20,000 and then give her a 5-year "Option" or "Right of First Refusal" to buy it back for $25 or something.  This way, it's 100% yours, and if she is able to pay you back, great. I dunno, just thinking out loud. Thoughts?

It's a great problem to have though!