Am I crazy or will this work? - Posted by RC

Posted by Jarhed on March 03, 2002 at 01:33:26:

Thanks Dave.

You’ve opened my eyes a bit here. After checking my math, what I described was way off anyway. Yep, the Lease Option does seem a much better and safer alternative for both of us, as long as he can survive without taking his equity out of the house immediately.

I understand his situation and of course want to help him move with some money in his pocket and help me into the house, but it appears that wont happen with both of us having weak credit.

Thanks for the advice! :wink:

Am I crazy or will this work? - Posted by RC

Posted by RC on March 02, 2002 at 24:07:17:

Here’s the situation:

Him: Moving to Atlanta in the next couple months, bought a house two years ago with his wife for $142,000, says it was appraised at $195,000 recently. House is in good mechanical condition, but is not pretty. Needs paint, pool needs cleaned, conditioned, etc.

His wife wants my wife and I to have the house. I’ve proposed a lease option to him, but he’s a little nervous about that because he needs cash. He’ll have no job in Atlanta, his wife will.

I have about $12,000 in past due debt to clear up before the finance companies will look at me (according to about three different ones I talked to in the past year). He said he would try to figure out a way to help me out of that debt so I can get financed.

My NEW proposal:
He refinances the house (he doesnt think he can because of his credit) for $190,000, agrees to sell to me at $190,000, lends me $10,000 to help clear that bad debt, then moves with $38,000 cash in his pocket to live on till he gets a job.

I ask the city to help me with the downpayment (they’ve been running programs like that in Southern California for a while now) and maybe get $15,000 (for argument’s sake) on a new mortgage of $190,000, leaving $175,000 for me to pay over 30 years at whatever decent interest rate I can get (5-6%). I pay him his $10,000 back and begin my payments on my new mortgage.

He unloads the house and is free to look for another in Atlanta with $48,000 cash he gets in the equity on the California home. I get a house to move my wife and myself into. (In about two years, the freeway will be extended to a route that is 2 miles away, making the neighborhood more accessible, possibly raising the property value).

What am I missing here? This is a stretch I know, and I’m a newbie. Is there any potential in this deal that you veterans can see?

Re: Am I crazy or will this work? - Posted by Dave

Posted by Dave on March 02, 2002 at 22:57:40:

Yes, a potential lost friendship!

I,m no expert, but if he has weak credit, he won’t get a low interest, 95% l/v loan. If the city doesn’t pungle up for you, he will wind up with a (less than) low down payment sale to you. If you bail out, IRS may treat it as a cash sale if he gets it back, and you can kiss your friendship goodby.
Your option idea is better. Then if you can’t get the loan you need, he doesn’t have a taxable event. Maybe you can find someone who will do a shared equity deal with you. Assuming that you have a good income and can do the fix-up.