To Friend: Solve my problem I will solve yours; Is this fair?

Question

I want to put 25% down on a new home costing $320,000. I need a mortgage at 75% LTV. Problem is I just set up in a 3 person LLC in which we purchased a home that is rented out and purchased property on which we built a large duplex and just rented it out last month for $1960/mo. on both sides.

Both properties are great producers but I have to wait two tax years for the income to count and now my cash is also tied up beyond the 25% down payment. So I can't qualify for a full mortgage.

I have a friend that has a problem rental and he lives 1500 mi. away from it. I offered to buy it with my SDIRA relieving him of his problem if he will combine his credit with mine so I can get a mortgage on the new house. If I were to use the IRA to help me buy the house I want to buy I will create a huge taxation problem for myself.

What additional security does he need? What is the downside for him? I know I am creating a large problem for myself as the home I would buy from him is an 8.5 hour drive from the new home. But I can't manage a home in a SDIRA anyway.

Am I getting the short end of the deal, is it an even deal, or is he getting the short end of the deal? What's an even deal?

Brian Gibbons · Answer

@Steve P. City, State

What is the existing financing? %. pmt PITI, balance due lender. fixed-ARM, etc.

What are the comps?

Market Rent?

Why does the Seller want to sell?

Troy Fisher · Answer

• Income vs. Mortgage - Do you need the income from the rentals to have a good enough DTI?  Have you talked to a mortgage broker about it yet or are you just assuming? Without looking for the right provider you should be able to have 4 mortgages in your name.  I'll assume Primary Residence, Retirement Home, Duplex, and Rental House.  Have you tried to find a mortgage broker and explained to them you need to go 5?
• SDIRA - A Self Directed IRA?  I'm not sure what the real problem is.  I imagine it goes to the above problem. ...him to lend his credit so I can get a full mortgage and prevent myself from losing the 25% down payment... Which mortgage?  What 25% down?

In your mind you may see the problems that you are facing, but unfortunately it's not translating into anything understandable.  If you can break down your problems we might be able to provide more insight into how to solve this, or give you a lead on the way too do it.

Steve P. · Answer

Sorry I didn't explain better. I'm the one that first contacted my friend to help solve my problem. I have 25% down on a retirement home in Arizona. I can't get a large enough mortgage due to the fact that my newly built duplex and the rental home purchased as a package are in a brand new LLC. Mortgage lenders need two years of rental income before it counts so not only did I spend most of my available cash for the project but I can't get any income counted for the great rentals until two tax years go by.

So I knew my friend had a problem rental that he would like to get rid of. If you know anything about SDIRAs you know that I cannot borrow that money. I can distribute it making myself a huge tax issue. Instead I can buy his problem rental with my SDIRA but in turn I am asking him to lend his credit so I can get a full mortgage and prevent myself from losing the 25% down payment.

Is this a fair deal? What are the risks for my friend?

Troy Fisher · Answer

Ok, so lets scrub  out all the bad stuff and get down to the nitty gritty:

You have a sellor who has a problem rental, and wants to sell to you.  To do so you need the 25% down for it, and you want him to give you the 25% down?  Sounds like you are looking at some creative financing here!  Great job on stumbling into the crazy world of financing.  Does he want to sell or just solve having to deal with a tenant?  Will give you a lease-option at a reasonable rate to make money on the deal?  Will he Owner Will Carry?  Find out what his needs are in regards to this property before you start making complicated guesses.