lots of equity - Posted by Michael Curran

Posted by jack on April 22, 2002 at 16:27:37:

Have him get a reverse mortgage and move on to the next deal. No income means no rent. No deal here that I can see.

lots of equity - Posted by Michael Curran

Posted by Michael Curran on April 22, 2002 at 14:48:55:

I have a very motivated seller. He is currently 40K in debt at age 79. He has a condo worth 230K-250K. free and clear,
His wishes are to stay in his condo. He has very little other income, he recently asked his son to buy it from him for 100k cash and his son could not come up with the $$. How could we structure this? Would it be advisable to rent back to him?

Re: lots of equity - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on April 22, 2002 at 20:10:18:

Michael Curran-------------------

Not knowing the desires of the owner in detail it is difficult to know exactly how it could be done to make him happy.

Here is a possibility.

You have him deed you the property, with him retaining a life estate. Or something similar to a life estate. He retains an estate for his life as long as he is living in the condo. After he moves out, his estate interest ceases.

You put a $80K loan against the property. Use that money to pay off his obligations and leave you about $40K in cash.

You give him a second mortgage for $60K or some other agreed amount. You pay him a monthly fee from the $40K cash you got in the first loan. You continue to pay this on the loan from him. This amortizes the loan, paying it down. Set an interest rate and a monthly payment amount.

When he moves out one way or the other, sell the property. Take the income from the sale to pay off the first loan and any remaining balance of the seller-carry second loan. You pocket the rest. Probably you will have to pay long-term capital gains.

Now, the negative here is that you have expenses: the payment on the first loan, taxes, insurance, home owner association dues. So, you have negative cashflow.

Should you not be able to afford the negative cashflow, might it be possible to sell your situation to some other investor who has high income taxes and can take advantage of the tax write-offs? Also the buyer from you will have the money to make the monthly payment and will receive the profit when the property goes vacant and is either sold or refinanced and rerented to a paying person.

Good InvestingRon Starr

Re: lots of equity - Posted by Brent_IL

Posted by Brent_IL on April 22, 2002 at 20:02:11:

Forget the $100K. He needs debt relief and a place to stay.

I’d make the assumption that he will live to be at least 100 years old and will need to be subsidized by ultra-low rent. Instead of a reverse mortgage, I’d use a quasi-private annuity agreement. A straight private annuity contract is a completed sale and will have tax consequences for the seller which he would not be able to pay

Have him deed it to a trust and work the numbers so you could make his debt payments and give him enough so he could pay rent to you. Get a RE tax attorney to draw up an agreement that parallels the terms of a true annuity agreement but does not complete the sale. When he dies, the annuity contract is fulfilled and you own the property free and clear. You’re cutting out the son, but that’s his cost for remaining in the house.

Annuities have tax consequences for you, too. Advice of a competent should be sought.

Re: lots of equity - Posted by jeff

Posted by jeff on April 22, 2002 at 17:38:45:

if you dont care what happens to the person living there right now, theres plenty room to make a deal here. but it isnt advisable to rent back to a no-income renter unless he qualifies for section 8 or some other garaunteed source. if he is unimportant in your thoughts try this:

buy it at his 100K price assuming you cant get him down to 95K and then L/O it back to him for 120K, if hes that adament about staying there. if he defaults (which he probably will, unless he has other income that is not discussable here), at that point you simply evict him and yuo have the property for 100K with 130K equity. he continued to live there per your agreement until he defaulted, so he really has no gripes legally. but you have to be pretty cold hearted to do this. but for 130K, its hard not to see his cries for help as dollar signs. i personally wouldnt do this to anyone intentionally (i dont think, anyway), but it is a great opportunity to get rich.

i hope i didnt give any unscrupuluous investors any bad ideas abuot how to abuse people, but for an answer to your question, itll work.