HELP! PLEASE READ, 1st possible purchase! - Posted by Steve
Posted by Steve on June 16, 2006 at 16:58:47:
HERE’S THE SCENARIO: Empty 2/1 home with a backhouse/bathroom in good condition (comps $410k) free and clear, owner passed away about 5 months ago. His 2 sons inherited the house by means of a Revocable Living Trust, the title still remains in the Trust. They have maintained the property since then and have paid the taxes. My friend, who lives across the street from the vacant house, told them I might be interested in buying. So they called me to gauge my interest. They told me that they were looking for an owner-occupant, who was going to take good care of the house. Their dad built it 50 years ago & they want it to go to a good family that will keep the house & neighborhood up. We had a very good conversation as we “connected” for about 30 minutes. It went VERY WELL.
HERE’S THE PROBLEM: I can’t afford a payment for a $410k mortgage. I informed him of this during our conversation. I wanted to be up front with him and not waste his time before he showed me the house. He said they are willing to be flexible & sell for $20k-$30k below market value, he also said they would entertain a creative offer if I had one. (I almost passed out at this point) I told him I was thinking along the lines of a “legal” seller carried 2nd, contingent upon the banks acceptance. I didn’t get into specifics, I just wanted to throw it out there to see if he would consider such a transaction. He seemed to be open to this, however he wanted to talk it over with his brother.
HERE’S MY PLAN: Because I can only afford a payment of $1500 per month (PITI), I’m thinking about offering to buy for $380k.
—Get a loan for $200k (52.6 % LTV), pay the 20% down payment to the bank out of my 401k. Finance $180k for 30 years @ a decent interest rate (I have good credit)
—Give the sellers a good faith deposit, have them carry a 2nd for 3 years for the remaining balance, NO payments due, NO Interest accrued, total amount due in 3 years.
—I would then apply for a HELOC for investments.
—Use a portion of the profits from the investments to add another bedroom & bath. (The comps show $475k for a 3/2 in the area)
I would now have the option of paying off the 2nd when it’s due and keep the house IF I can afford the payment by then, OR sell the house after 2 years, so I can get the 250/500k tax exemption, pay off both the 1st & the 2nd. Keep the profits (potentially $50k-95k) and invest away!
HERE’S MY PERSONAL SITUATION: I’m not looking to make a killing on this house. I just think that it would allow me to accomplish a few personal goals:
move my daughter & pregnant wife out of our small apartment & into a home without killing us financially while allowing my wife to stay at home for a year with our new baby.
Use the $20k-30k equity in this house to get a HELOC for investment purposes and get my RE investing business going.
Move my parents into the nice little backhouse(rent-free), so they can move out of their rental and have more $$$ for retirement.
I thought if I can buy this house this way, it gives me 3 years to afford to buy it outright or use it to leverage other investments and help me attain my goal of investing full time. What do you guys/gals think? Is this even possible? Do you have any other suggestions? Please feel free to chime in. Thanks in advance!