Re: Buying our first home - Posted by GL(ON)
Posted by GL(ON) on July 01, 2002 at 15:12:02:
I was over simplifying for the sake of someone who was not experienced in the details of real estate transactions.
In this case the problem if I read it correctly is that the buyer wishes to buy a property for which the asking price is $67,000. They already know they qualify for a $45000 mortgage. That means they need a $20000 down payment which they don’t have.I am assuming they can get the place for $65000 cash, in fact they should be able to do better than that, but let’s be consevative.
Now suppose an investor put down $20,000 in return for half ownership in the house.
The buyer agrees to make all payments, pay taxes insurance repairs and any other expenses of the property.
The investor does not get monthly cash flow, on the other hand he has no expenses no hassles and no risk.
I say no risk because this is all spelled out in the contract. If the buyer does not live up to his agreement, the investor can take over, evict the buyer or whatever is necessary. Remember the investor is already on the deed as half owner.
So for $20,000 the investor is half owner of a $65000 property with no further liability, unless the buyer defaults, in which case he becomes full owner.
Now when they come to sell, the investor gets back his $20,000 off the top plus half of the appreciation or equity buildup.
If you chose, you could put a time limit on this. For example, you could agree that in 10 years time, if you have not sold the house yet, you would either sell it and divide the proceeds or have the property appraised and the buyer pay out the investor’s $20,000 plus his half of the equity, which the buyer could raise by getting a larger mortgage.
Now if you were a senior real estate investor with plenty of cash on hand, would you be interested in an investment like that?
The only question remains, how good do you want it? In other words how much of a down payment would you make in return for half interest in the property?
Remember that you would be getting a half interest in the property for cash while the buyer would be responsible for ALL the mortgage payments.
Now suppose the investor wanted a half interest in return for 1/4 payment.That would be $16,250 and the buyer would have to come up with the other $3750, still a far cry from the $20,000 they don’t have.
I leave it to you whether a half interest in a house for 1/4 of the price would be of interest to you, under the circumstances.