Re Anybody have an idea on how to make this work - Posted by Mike E

Posted by Chris on February 13, 2000 at 14:51:54:

If Bill Gatten uses this chucking material at his workshops I’ve got to attend.

These archives are a goldmine. If you know of more classics like this one please lead us woodchucks to them.

-Thanks, Chris

Re Anybody have an idea on how to make this work - Posted by Mike E

Posted by Mike E on February 12, 2000 at 19:33:31:

I inherited a home several years ago. I owe about 8500 in back taxes three thousand in attorney fees, and it will cost me about 8-10,000 to fix it up . My daughter and family are renting from me at present with the intention of buying the house from me. Rent is 600/mo. They are a young couple with a 5 year old and a newborn. Interest rates are going up so they can only afford about 750/mo PIT Taxes are 243/mo House value now is 75,000fixed up about 85-90k. I want to help them but be fair to all parties involved. How can I make this work so they can afford the home and pay me off for the new value of lets say 85,000?? I’m open for suggestions Mike

Re: Re Anybody have an idea on how to make this work - Posted by Ed Garcia

Posted by Ed Garcia on February 13, 2000 at 01:27:06:


There is an old saying that say’s, FIGURES DON’T LIE, BUT LIARS CAN FIGURE.
what were saying is We can make these figures dance. We can make them do what ever we want
them to do.

So with that in mind, I’m going to help your daughter get this house from you and make you feel good
about it.

Now Mike your current costs on this house no matter who you sold it to are,

$8,500 Back Taxes.
$3,000 Attorneys fee.

Total $11,500. ?.. That’s carved in stone.

$9,000 Fix up?. you said between 8 and 10 thousand, so I hit it in the middle.
New total, $20,500.

Now if you listed the house with a realtor for $85,000, they would charge you 6% to sell it for you.
That’s $5,100. You mentioned that the house in fixed up condition would be worth, between 85 and 90k.

Now Mike, were talking about your daughter, that 5 year old grandchild and the bundle of joy that
just arrived that has your blood running through their veins. Remember if they are going to pay
full retail, then why do they need you. They can buy a home anywhere for full price.
Their coming to you for help.

Now I know you want to do the right thing, that’s why you’re here to ask us to help you establish a
price that you think is fair for your daughter as well as yourself.

If you sold this house to Joe Blow, and by the way, Joe may have wanted a discount because he was reading on creonline how you should buy houses below market.

But lets say old Joe is easy and will pay $85,000.

After the cost that I just gave you not including your share of closing cost, here’s what you have.

$85,000 - cost $20,500 = $64,500 - realtors commission of $5,100 = Net $59,400.

So when the smoke clears on a full retail deal, you’ll clear $59,400. Anything you take off of this
Figure is where your generosity for your daughter truly begins, so you tell me.

I think for now I’ll let you dwell on what you want to do for your daughter, that’s a personal thing
between you and her. But please keep in mind that you inherited it from also a loving family member.

On this I’ll say no more. If you want to e-mail or talk to me personally you’re more than welcomed to.

But now lets see what your daughter and her family need. They need a place they can call home and to
pay about $750.

Mike the two things that have to be paid are the taxes and the attorney.

Mike, we haven’t talked about your daughters credit? We haven’t discussed if she has any money down?

I’ll tell you what. I’m going to be a devils advocate and say she has bad credit and no down.
Now what?

Lets forget about everything and look at this from another angle.

In today’s market, someone with A,B,C or D credit can borrow against the house and pull cash out of this deal if they refinance it. It’s just a matter of how much and at what rate.

If your credit is A, B, or C, your good for 75% LTV. You state that the house in it’s present condition is valued at $75,000.

Value: $75,000
75% = $56,250 subtract the taxes and attorneys fees of $11,500 = $44,740
Payments on $56,250 at 8 ½ % are $432.56, that’s not PITI.
Now you’ve refinanced it with a loan in place and owe $56,250.

We both know that the house still has not been fixed up, which would be another $9000. to get it to market

Mike lets not fix it up. Why spend $9000 to fix it up to only increase it that amount, then what’s the point. Lets let the kids fix it up over a period of time and build up some sweat equity.

I’m going to throw some numbers together that might work for everybody.

She’s your daughter, lets sell it to her for $80,000.

We didn’t do the work, so lets take off the $9,000 giving her credit to do the work later.
We now have a balance of $71,000. Lets split the commission on the $80,000 which would be $4,800 divided by 2 = $2,400. take that off of $71,000 = $68,600.

Lets wrap the first of $56,250 into a new loan that you will carry for 3 years of $68,600.
So now you have a wraparound loan of $68,600 for 3 years at lets say 9% interest only, which would
give her a payment of $514.50. per month. She will then pay the taxes and insurance.

At this point you have paid your back taxes, paid off the attorney, and pulled $44,750 cash out of the deal.
She still owes you $12,350 which if you ad that with the $44,750 you have already received. You’ll net
$57,100. and you have a positive cash flow of $81.94 for 3 years.

In 3 years if she works on her credit, and fixes up the house, she should be able to get a decent loan to pay off your loan netting you $57,100 pretty close to what you would have netted if you would have sold it for the full price. Meanwhile she has a payment she can afford, bought a house with no money down, has
write off, and re-established her credit, thanks to you.

If she already has good credit, I have other ways to do this deal.

Ed Garcia

Will you consider this? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 12, 2000 at 23:53:40:

Your daugther cannot afford to finance $85,000.00 on this home through conventional methods. If YOU are wiling to be flexible on how and when you get your equity out of the property then a creative deal can easily be put together.

Sell them the home for FULL value or $85,000.00 and finance that sale. You carry back (2) two notes; a $64,000.00 1st lien and a $21,000.00 2nd lien. The 1st lien if structured correctly can result in you obtaining immediate CASH liquidity for that note (probably somewhere in the $55K +/- range. Remember ther terms of repayment have to be such so as to keep the principal and interest payment at around $500.00 per month so that when you add back in that $243.00 monthly tax payment your daughthers payments will be at or under $750.00.

As for your $21,000.00 lien, you can set that up any number of ways. Deffered payments, no interest, no payments and one future lump sum payment, etc. What you really would be doing with this loan is accomdating your daugther. At some future point in time you’ll get paid off IF they perform.

Michael Morrongiello

Re: Re Anybody have an idea on how to make this work - Posted by JPiper

Posted by JPiper on February 12, 2000 at 21:49:15:

I don?t see a way that your daughter can afford an $85K house based on the information you?ve given. It appears that if they can afford $750, that after paying taxes and insurance of $243 per month (these seem high by the way), that a principal and interest payment of $500 at 8.5% interest only gives them a loan of $65,000. I?m assuming that they don?t have $20K. Further, if you were willing to carry the difference this still doesn?t give them a means of paying that second mortgage.

If you?re bound and determined to sell this property to them, you could always go put a $65K loan on it yourself (putting cash in your pocket), and then lease option it to them for $750 per month (a breakeven for you) and with an option price of $85K-$90K. If their income rises to permit affording a loan on the house, they could later get a new loan to pay you off.

Frankly though, it looks to me like you?re stretching here. Sometimes the best help you can give a child is to point them in a different direction.


Why… - Posted by David Alexander

Posted by David Alexander on February 13, 2000 at 13:07:08:

Ed, Why do you need the Realto Fee. We already have the buyer, the daughter.

David Alexander

Re: Re Anybody have an idea on how to make this work - Posted by Mike E

Posted by Mike E on February 13, 2000 at 05:17:46:

Ed Garcia
Thanks for the good advice from all of you . How can I get in touch with you Ed through e-mail Mike

Re: Re Anybody have an idea on how to make this work - Posted by Mike E

Posted by Mike E on February 13, 2000 at 05:16:24:

Ed Garcia
Thanks for the good advice from all of you . How can I get in touch with you Ed throuhg e-mail Mike

Re: Re Anybody have an idea on how to make this work - Posted by Chris

Posted by Chris on February 13, 2000 at 02:38:03:


That was an excellent post.

I’ve got to admit that I am becoming a big fan of yours. One reason is that you provided a road map for Mike to get things on track. Another reason is the cool terms and sayings that you use.

Last week I learned MOOCH KILLER


Please keep this up and consider placing a glossary of these terms in the articles section of the site.

-Thanks, Chris

Re: Why… - Posted by Ed Garcia

Posted by Ed Garcia on February 13, 2000 at 13:23:45:


I just plugged that in to demonstrate that if Mike sold the property in the conventional way,
that’s an expense he would have to pay. By doing the deal with his daughter, he is saving
that cost and I’m asking him to pass on a portion of it to his daughter.

David, while I’m at it, thank you for coming to my defense on the post above, I appreciate it.

Ed Garcia

An idea for you, Chris - Posted by CarolFL

Posted by CarolFL on February 13, 2000 at 11:12:49:

Why don’t you take it upon yourself to inventory “Garcia - isms” and when you feel you have a fairly complete stock, offer it intact to JP for posting?

Ed wouldn’t notice his own idiomatic language … that’s the beauty of it!

Take this on for Mankind, Chris. It can be a labor of love!

Re: Why… - Posted by Bill (OH)

Posted by Bill (OH) on February 17, 2000 at 05:08:48:

Ed, what’s your E-Mail address? I’d like to correspond with you as you think just like the broker that’s teaching me. I’ve seen deals done just the way you described it and it works. The sad thing is that 9 out of 10 realtors that you talk too won’t be able to comprehend what you are talking about!!

And as to the ‘why?’ of adding in the realtors commission, another answer is that since well over 90% of all SFH’s are sold by realtors, the ‘market price’ contains within it a commission fee, with the average fee being 6%. So, if the market price of a SFH is 85,000 in a particular neigborhood, start off figuring on a 6% commission in that price.

Re: Some good competition… - Posted by Chris

Posted by Chris on February 13, 2000 at 11:50:26:

This might be a good project Carol. I’ll think about it.

However, Ed has some creative posters such as JPiper and Ray@lcorn and Bill Gatten to compete with.

I mean some of these posts go on and on and entertain the heck out of me (even if I don’t understand them).

Check this one out-

One of My Favorites… - Posted by JPiper

Posted by JPiper on February 13, 2000 at 12:17:09:

Here’s one of my all time favorites:


Thank you Jim… - Posted by ray@lcorn

Posted by ray@lcorn on February 14, 2000 at 13:33:40:

…for bringing the woodchuck post back to life! I made a stab at finding it when Terry got the archives working, but couldn’t remember the time frame.

One of my favorites as well… and still as funny as the first time I read it! :wink: