Hello everyone,
I have a potentially great deal I’m trying to put together, and I’d love to hear what you all think my best options are. I think this will take a very creative approach. I am inclined to be aggressive and acquire this property soon because it presents the potential for efficient financing and a 10-year loan payoff with little interest. Thanks for reading.
The property:
4-unit house on 8 acres. Gross income is about $3K/month, all utilities paid by tenants. House is in great shape, with no particular foreseeable issues or improvements needed. For 10 years the rents have been relatively easy to fill with regular, easy-going, rural tenants.
The owners:
My father and stepmother.
The existing financing on the property:
The house is owner financed with 10 years left of a 20-year loan for $200,000 at 5%. The principle left owed on the loan is around $90K. Payments for this loan are about $1,400/month.
There is also a second equity loan that is bank-financed. It is a $70,000, 5-year loan, with 8 years left and about $50,000 of principle due. Payments for this loan are about $600/month.
The opportunity:
They are getting divorced after being separated for 4 or 5 years. My stepmother wants out, and my father wants to get the property over to me. She and my father would give me the property if I would simply take over the two loans (if it were that simple!). I know the main financier and he would allow me to take over the main loan, which has ten years left on it.
The challenges:
There are three main challenges I see. One is the $70,000 equity loan and how I can take care of that. I cannot pay it off outright. The second is that the mortgage covers an additional 20 acres of land that my stepmother would want to take free and clear in exchange for giving me the deed of and equity in the house (this seems like a fair split between them from a divorce point of view - the house is worth about $300K w/ $140K owed and the land is worth about $150K). The third is the whole divorce scenario.
I am inclined to go to a few banks with the balance statements of each loan in hand and simply ask them what my options are. Regarding the divorce issue, I am inclined to think that if I can acquire the property while they are still married, then I can avoid the issue. As an alternative approach, I have considered that perhaps my father should exchange the house for the 20 acres as part of the divorce settlement, and from there place it in a trust for me.
FYI, I will not live there as owner-occupied, and my experience in rental property includes one two-family which I currently have owned for about five years. I would like to avoid major tax implications if possible obviously, but I would intend to keep the house indefinitely.
Thank you!
Farmer