Buying A Friends Property - How To?
Hi folks. Interesting forum. I'm Don from upstate NY. I'm a budding real estate investor. I own one 3 unit rental property currently.
I am living in and managing a 2 family property that my best friend owns. The 2nd floor apt rents for $900/month and I pay $550/month (reduced from $750).
He moved to maine for a new job about a year ago. Instead of selling the property then he asked me to move in and manage it for a reduced rent.
The property was recently appraised for $125k and refinanced by my friend. They owe roughly $107k.
With some vinyl siding, a new fence around the property and some landscaping I'm certain the property would be worth around $160- $170k. It would be a great investment for me in the long run (3-5 years).
I really want to buy the place from him but don't have the 20% down necessary to get a mortgage.
I've been researching land contracts. This seems like it might be a good alternative.
How would this look on paper? What would make a seller want to sell using a land contract? How would it benefit the seller and/or the buyer?
Any info would be greatly appreciated.
Several things:
1. You will not need 20% down as long as you can qualify for a mortgage. This will be owner occupied for you so you will have good programs and rates.
2. Be sure you judge the after repaired value of the property well before you make improvements. It would be wise to consider only the value as if you are going to immediately resell the property. Appreciation should be a bonus.
3. Land contracts are not the only way to purchase property. You should look more into "subject to" and "lease options"
4. Advantages of creative financing to the seller are that they can likely sell for above market value, spread gains tax over several years, profit from the interest, etc, etc, etc.
5. How would this look on paper? Many use unnecessary documents but it is my practice to simply use one form--the land contract. This document should be recorded to protect your interest as a buyer. This document spells out the purchase price, down payment (if any), montly payments, interest rate, balloon payments, and other terms.
This is a generic question so this is by no means complete. If you have a more specific question you will get better advise. Also know that my comments are as a layman and not as an attorney or other professional. Always seek competent professional advise before making any decisions.
GOOD LUCK
thanks for the reply. I agree my question was sort of generic.
I guess what I really want to know is how to entice my friend into selling me the place with no money down?
He's said he likes the $300-$400 cash income the property is currently making him but would consider selling it if the price were right. Meaning at or slightly above $125k.
I like living here and am not intending on moving for at least a few years.
Having very little cash (about $2000) to offer up what would you do in my situation?
I would first check to see if you can quality for a mortgage. See if you can get an 80/15/5 loan...meaning an 80% first, 15% second, and 5% down (just wait).
If you can get approved for that and the numbers work for you, offer the seller his full $125k but ask that he contribute 6% to the Nehemiah Group (www.getdownpayment.com). This is the same fee as he would pay to a real estate agent plus he can sell at the top of the market. An appraised by my own definition is the highest price any reasonable person would pay.
SO the numbers would work like this:
$125,000 minus $7,500 to Nehemiah - $500 Nehemiah fee= $117,000 net to seller minus closing costs
You buy at $125k, get $7,500 as a gift plus you have $2000.
You use $6250 as your 5% down and have $3250 for closing costs.
IF the seller won't go for this you are going to think of something else. Maybe you can have the seller take back a 5% 2nd mortgage rather than gift the funds to you.
If the price isn't right and he's loving the cashflow, you are going to have to come up with a way to give him $300/mo for his 18k equity. Without paying rediculous interest you should limit the term to 72mo @ $300/mo which is 6.20% interest.
GOOD LUCK
frogger thats great info thank you