Made a guy an offer to help him out today

[street]

I have this and his wife for about 25 years or so. He and his wife have disabilities and are reaching mid 60's. They have been rent this old 600 sf home and the owner want to sell it and the lot next door as a one deal sale. There are two separate lots with a house on each one. The house he in is rough shape and the other one about the same size is unlivable.

They are both in the county with the city boundary bouldering the frontage of both lots. Property has been up for sale four about and the dilemma for this couple someone will buy it and demolish both places and build. This guy would not have any place to go very they are very poor and have worked as hard as they could through the years what their health and disabilities would allow them.

I was talking to him a few days ago and he said the owner would cut him a deal to buy it under what he wants for it. He went to bank to see what they could do for him. They told him he would need 20K down before they could give him a loan. The owner will take 80K for the two lots and buildings for him only.

The problem is he doesn't have the 20K for the down payment. His payments he said with 20K down would between 300 & 400 a month then.

So, today I called and talked to him and said my wife and I would be willing to give you the down payment or some amount you would need to get the loan. He said that the other lot I could have in my name for the help in helping to secure the loan and helping him. He doesn't really want that lot and doesn't need it.

I do believe I could sell that lot for what I would have in it, and I still would be helping these people. It is basically in town would be a great place for a shop, home, business with great traffic and hwy frontage.

So, what are your opinions, views and take on this proposal for this couple. Is it a fair shake and do you see any issues etc.

 

[Ronstar]

I don't see any issues as long as there are no liens against either of the 2 lots. Or flood plain, etc making your lot difficult to build on. And it would be great if he would convey the vacant lot to you for $0.

Just an idea, maybe you could get right of first refusal if he decided to sell the lot with the old house later on. This may make sense if future development would be better if it was done on both lots as one.

Either way, it sounds like a great gesture on your part.

 

[street]

Thanks Ron!!! Alwas great honest advice and a straight shooter, Thank You.
No flood plain issues and no liens on either lot. They are individual lots with each their own tax value. Being county property no restrictions on what goes there a shop, home or business. I checked on those.

The house the couple live in is 120-year-old structure and is rough shape. Most people wouldn't use the home for a storage shed. The owner never put a dime into either place.

I think he gets a pretty good deal on rent, but I never asked him.

 

[Gumby]

..... And it would be great if he would convey the vacant lot to you for $0.....

Wouldn't it help with eventual taxes if the guy conveys the vacant lot to street for $20k, consideration already received, so that street doesn't have a tax bill on $20k of profits when he subsequently sells?

 

[street]

Wouldn't it help with eventual taxes if the guy conveys the vacant lot to street for $20k, consideration already received, so that street doesn't have a tax bill on $20k of profits when he subsequently sells?

That is a good question!

 

[Koolau]

You know me. I always suggest professional advice like a Real Estate Attorney. Good luck Blessings on you street for being so generous and helpful to this couple. I hope it all goes well.

 

[all4j]

off the top of my head, I'd have 2 questions. 1st having to do with the mortgage -- will lender be ok if the $20k is a gift (vs buyer selling another asset already owned) & would it violate terms of mortgage if 'other lot' changed ownership? 2nd, will unlivable house need to be demolished, insured, etc & if so, what is cost?

Good luck with decision & congrats on willingness to help!

 

[Koolau]

When we gifted to our kids for down payments on homes, we signed an "official" note that said the money given was a gift with no expectation of repayment.

Since it's possible that property will be exchanged on this particular deal, that's why I think it best to have it written up by an attorney but YMMV.

 

[street]

off the top of my head, I'd have 2 questions. 1st having to do with the mortgage -- will lender be ok if the $20k is a gift (vs buyer selling another asset already owned) & would it violate terms of mortgage if 'other lot' changed ownership? 2nd, will unlivable house need to be demolished, insured, etc & if so, what is cost?

Good luck with decision & congrats on willingness to help!

Some more great questions as far as lender goes. I don't have those answers yet. If it gets to that point and the couple agree to letting me help the logistics will be to be evaluated and agreed on and be legal.

The house will be demolished. That is the other thing I would have more resources to take care of that lot then he would on all fronts.

Since they are separate lots my thinking the lot could be transferred to my name before the loan was granted. They are going through a realtor, but owner is involved also in the sale. The owner needs out because of health issues soon. So, yes, some answers need to be addressed for sure. Thank you for shedding more light on this topic.

 

[street]

When we gifted to our kids for down payments on homes, we signed an "official" note that said the money given was a gift with no expectation of repayment.

Since it's possible that property will be exchanged on this particular deal, that's why I think it best to have it written up by an attorney but YMMV.

True!!

 

[pb4uski]

So let me see if I have it straight. Your friend could buy both lots and the buildings on them for $80k and has no interest in the second lot. And you think the second lot is worth more than $40k.

Perhaps what you can do is play "bank" and put up the entire $80k for him to buy it with a loan from you collateralized by the property. If the seller asks, he can tell the seller that a friend is providing financing for him.

After he closes, he could then sell you the second lot for whatever you guys agree on in exchange for forgiveness of some of the loan in the same amount.

I would calibrate it so the loan that they end up with is affordable to them. So for example, let's say that they can afford $400/month.

For example, you provide 100% financing and they buy both lots and buildings for $80k. After closing (could be immediately or sometime later) you buy the second lot for $40k of loan forgiveness.

They end up with the primary lot and building for $40k and if you finance it over 30 years at 6.5% then their monthly payments would be ~$250/month.

You end up with the second lot for a bargain price of $40k.

 

[CaptTom]

Or, buy both lots and sell/rent the one to the guy living there. That frees you up to do what you want with the other.

 

[street]

So let me see if I have it straight. Your friend could buy both lots and the buildings on them for $80k and has no interest in the second lot. And you think the second lot is worth more than $40k.

Perhaps what you can do is play "bank" and put up the entire $80k for him to buy it with a loan from you collateralized by the property. If the seller asks, he can tell the seller that a friend is providing financing for him.

After he closes, he could then sell you the second lot for whatever you guys agree on in exchange for forgiveness of some of the loan in the same amount.

I would calibrate it so the loan that they end up with is affordable to them. So for example, let's say that they can afford $400/month.

For example, you provide 100% financing and they buy both lots and buildings for $80k. After closing (could be immediately or sometime later) you buy the second lot for $40k of loan forgiveness.

They end up with the primary lot and building for $40k and if you finance it over 30 years at 6.5% then their monthly payments would be ~$250/month.

You end up with the second lot for a bargain price of $40k.

I actually put some thought into that option. The one thing I don't want is to be the banker. I would rather help him than go that route. If it works out so I can help him would be good to get him a secure/stable place he knows he can live at and not worry about getting booted.

I do not want a long stretched out partnership deal.

The down payment I would help on which is 20K is what we talked about for help. The lot he offered me for helping would be way less than the lot and home he lives on.

 

[Backpacker]

Not sure what state you're in, but in Michigan the title company can do a concurrent closing on sale back to you of the separate lot. You'd need to be certain that the lender in first position is OK with only the "house lot" as collateral. I'm guessing the lender would not be okay with it, based on what you've described. I like pb4uski approach to be in first position, but understand your hesitation. You could file a 2nd mortgage on vacant lit, or both, at the closing with instructions to title company to record your lien after the mortgage company. If lender has 1st position lien on both lots, getting them to agree to a partial discharge is going to be difficult so soon after initial sale. Back in my lending days we required loan to season for a year and required a new appraisal.

Very kind of you to bless them with the assistance.

 

[street]

We will see how this goes and if there is way, I can help secure them a place without too many hoops to jump through.

I do agree on what you say about the lender/bank side of business. I think most of the decisions could be settled right from the owner with the divide of property before any loan talk on the lot and home which he lives on. A trade for down for the lot and seller gets what he is ask for.

A lot to consider, my offer has been made to him with the understanding if it works out it does, but it might not. He did understand and was very grateful and humbled.

 

[38Chevy454]

I think the difficulty is the primary mortgage holder will view breaking up the two parcels out of the one mortgage. So while the bare lot is worth $20K, and the house lot is worth $60K, the problem is that if the new owner (the current renter) then sells off the second bare lot, the primary mortgage holder will view their $60K mortgage as having no equity.

Unless you can get two appraisals that show the house property is worth $50K (for example) and the bare lot is worth $30K. That may help the primary mortgage be OK with reducing the mortgage to be only for the house lot and not both parcels.

 

[street]

I think the difficulty is the primary mortgage holder will view breaking up the two parcels out of the one mortgage. So while the bare lot is worth $20K, and the house lot is worth $60K, the problem is that if the new owner (the current renter) then sells off the second bare lot, the primary mortgage holder will view their $60K mortgage as having no equity.

Unless you can get two appraisals that show the house property is worth $50K (for example) and the bare lot is worth $30K. That may help the primary mortgage be OK with reducing the mortgage to be only for the house lot and not both parcels.

Yes, that is how I would see it.

I still have an offer proposal for a junk of irrigated land that could happen anytime or maybe not. I also want to help buy an office building for the son and his wife if that materializes. To many things, but could help, and do all the things I have going if they all happen.

 

[engineernerd]

I actually put some thought into that option. The one thing I don't want is to be the banker. I would rather help him than go that route. If it works out so I can help him would be good to get him a secure/stable place he knows he can live at and not worry about getting booted.

I do not want a long stretched out partnership deal.

The down payment I would help on which is 20K is what we talked about for help. The lot he offered me for helping would be way less than the lot and home he lives on.

Sounds like the current owner is only willing to sell for what I assume is a bargain price (can you verify this?) if it's a completely simple deal and the buyer is this couple (nobody else, not even you).

If that's the case, AFAIK your two choices are to give them the $20k or be their lender.

Note that being their lender doesn't have to be a long-term thing. Once this sale is complete they can certainly seek out a bank mortgage secured only by the property they want to keep, and pay you what you agree on out of the proceeds of that new loan.

Know that if they get a bank mortgage on the combined purchase, they will likely need a different mortgage to be able to divest (sell or give away) the extra lot, and that will cost them whatever fees and "points" and whatnot the new loan will require.

 

[RetireBy90]

Very gracious of you to offer the help. I would wonder if he is able to maintain the house in livable condition. If it is bad condition now, in 10 years will it get condemned and they will have no recourse ? I’m sure you have covered this already

 

[street]

Sounds like the current owner is only willing to sell for what I assume is a bargain price (can you verify this?) if it's a completely simple deal and the buyer is this couple (nobody else, not even you).

If that's the case, AFAIK your two choices are to give them the $20k or be their lender.

Note that being their lender doesn't have to be a long-term thing. Once this sale is complete they can certainly seek out a bank mortgage secured only by the property they want to keep, and pay you what you agree on out of the proceeds of that new loan.

Know that if they get a bank mortgage on the combined purchase, they will likely need a different mortgage to be able to divest (sell or give away) the extra lot, and that will cost them whatever fees and "points" and whatnot the new loan will require.

It is a unique situation. The owner has some mental issues after a wreck he was in many years age. His sister is trying to get him out of debt, and he is willing to let her help because he knows he needs the help.

They are looking for a buyer that will keep that home as a rental and the other one as a fixer upper. They know the fixer upper is a demolition project. It is really unfixable. The realtor, owner and myself all know one another. We all want what is best for this couple to have a place because of their condition and situation. I don't believe it has sold because the person wanting to buy it would want to demo both places and build. The property together is one acre with one lot being a little larger.
There may be something in all this small-town people knowing people and watching out for one another that may fit the couple the owner and other to make it work for the cause.

We will see and I'm always excited about helping people that have done their best that they can do but need a boost in life.

 

[street]

Very gracious of you to offer the help. I would wonder if he is able to maintain the house in livable condition. If it is bad condition now, in 10 years will it get condemned and they will have no recourse ? I’m sure you have covered this already

You know I'm not sure if he can or not. It does need shingles now, but owner just doesn't have the money to fix it I'm assuming. The couple have asked him many times to fix it but hasn't.

All I can do is help for the now, then what happens to it down the road his is concern. I think if he owned it, he would find a way to get it roofed. It is a small home less than 600sqft.

 

[pb4uski]

Not sure if you have any relationship to the seller, but could you buy the whole thing and do some sort of rent-to-own deal with your friend on the lot and habitable building?

 

[Koolau]

Not sure if you have any relationship to the seller, but could you buy the whole thing and do some sort of rent-to-own deal with your friend on the lot and habitable building?

I'll let street answer for himself, but I never want to be a landlord again. I did it to help further my Financial Independence back in the day, but now, I just don't have the heart (or stomach) for it. It's very much a personal kind of thing and, personally, I'd rather just help out the guy to buy the property.

 

[marko]

Street, you are a special kind of person.

 

[Koolau]

Street, you are a special kind of person.

Indeed!