Bought his neighbor's rental with basically no money out of pocket

Bought his neighbor's rental with basically no money out of pocket

Sean DavoodianBusiness Member
Lender · Glendale, CA · Member since 2025 · 18 posts · 7 votes

Had an interesting one recently.

Buyer was purchasing an investment property directly from his neighbor.

No Realtors involved.

Buyer and seller knew each other and decided to use a title/closing attorney to handle the transaction, which kept the transaction costs pretty low.

Here's where it got interesting.

The seller had enough equity that instead of the buyer coming in with the normal down payment, they structured a 20% gift of equity.

Then the seller also gave a 6% seller concession toward the buyer's eligible closing costs.

20% down payment covered by equity.

Most of the closing costs covered by the seller concession.

Buyer ended up bringing essentially no money to the table.

And this was an investment property.

I think a lot of investors hear "gift of equity" and automatically think:

Parent selling a house to their kid.

That isn't always the only scenario.

Certain Non-QM/investor programs can allow structures outside the normal conventional gift-of-equity box. The exact relationship, seller mortgage history, non-arm's-length rules and program all matter, so this definitely isn't something I'd assume works on every loan.

But if someone is buying a property directly from a landlord, neighbor, friend or somebody they already know, it's at least worth understanding whether there is equity in the deal that can be used instead of automatically writing a huge down-payment check.

The craziest part to me was the seller got the price they wanted and the buyer preserved basically all of their cash.

Anyone here ever structured a purchase using gift of equity on an investment property?

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  • Specialist · I give advice - [email protected] - I focus on states where investing is profitable, reasonably safe & secure · Member since 2026 · 105 posts · 28 votes
    1w
    Quote from @Sean Davoodian:

    Had an interesting one recently.

    Buyer was purchasing an investment property directly from his neighbor.

    No Realtors involved.

    Buyer and seller knew each other and decided to use a title/closing attorney to handle the transaction, which kept the transaction costs pretty low.

    Here's where it got interesting.

    The seller had enough equity that instead of the buyer coming in with the normal down payment, they structured a 20% gift of equity.

    Then the seller also gave a 6% seller concession toward the buyer's eligible closing costs.

    20% down payment covered by equity.

    Most of the closing costs covered by the seller concession.

    Buyer ended up bringing essentially no money to the table.

    And this was an investment property.

    I think a lot of investors hear "gift of equity" and automatically think:

    Parent selling a house to their kid.

    That isn't always the only scenario.

    Certain Non-QM/investor programs can allow structures outside the normal conventional gift-of-equity box. The exact relationship, seller mortgage history, non-arm's-length rules and program all matter, so this definitely isn't something I'd assume works on every loan.

    But if someone is buying a property directly from a landlord, neighbor, friend or somebody they already know, it's at least worth understanding whether there is equity in the deal that can be used instead of automatically writing a huge down-payment check.

    The craziest part to me was the seller got the price they wanted and the buyer preserved basically all of their cash.

    Anyone here ever structured a purchase using gift of equity on an investment property?

    How did they decide what the selling price would be?

    • Sean DavoodianBusiness Member
      OP
      Lender · Glendale, CA · Member since 2025 · 18 posts · 7 votes
      1w

      Great question

      Without giving too much information about the actual client, I'll use round numbers.

      Let's say the neighbor had a number they wanted to walk away with, around $100K. My client called me because he was buying his longtime neighbor's property below market. We ran some comps and felt it was worth around $135K, so obviously there was a good amount of equity there.

      I asked if the neighbor would be open to selling it FSBO at roughly $132K, then gifting 20% of the purchase price as equity and giving another 6% in seller concessions toward the buyer's eligible closing costs.

      At first my client was apprehensive because technically he was buying it at a higher contract price than the seller originally wanted. But once we showed him the difference in payment between the smaller loan and the higher loan amount, it was pretty minimal compared to the amount of cash he was able to keep in his pocket.

      There was a little back and forth between the seller, his tax advisor and the title attorney, but eventually everyone got comfortable with the structure and we were ready to rock and roll.

      One big caveat: the seller's existing mortgage could not be in arrears. The investors buying these loans are pretty clear that they don't want this used as a bailout structure for a distressed seller.

  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    5d

    The neighbor-to-neighbor assumption angle here is one I've seen work really well, and this is a perfect setup for it.

    If that rental had an FHA or VA loan on it, the buyer could have assumed it directly. No new financing, no qualifying for a 7% rate, just taking over whatever rate the neighbor had. If it was a 2020-2022 origination, that's probably a 2.5-3.5% loan. On a $300K balance, that's roughly $1,400/month vs $2,100/month at today's rates. The equity gap (purchase price minus remaining balance) gets covered with cash or a second mortgage.

    The fact that no Realtors were involved actually makes this easier in some ways. The assumption process is between the buyer, seller, and the servicer. You don't need agents for it, just someone who knows the paperwork. The servicer handles the transfer, takes about 45-90 days, and costs around $750/side.

    The setup described here, two neighbors, existing relationship, title attorney handling closing, is actually ideal for an assumption if the loan type supports it. Worth asking about before the deal closes. Once the seller's loan is paid off with a conventional sale, that rate is gone.

    Every FHA and VA loan is assumable by law. That's not a niche product or a workaround. It's a statutory right that most people don't know exists.

    DM me if you want to work through the numbers on a specific deal like this.

    The Assumable Guy544 Reviews
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