My mother in law called me and said that a friend of hers needs help. Her and her husband owned an IGA store that went under. They filed bankruptcy. They want to stay in their home. They want us to buy the home from them and let them rent it. And yes, I fully trust these people. I’ve known them for years myself.
Here’s what info I have so far:
in 8/04, house was appraised for 123K
they paid 112K for it and owe 105,800
their payment is 956.79 at 6.75%
30 yr old ranch, 3-1
on a note the lady wrote it says: monthly payment is the most important, but if we can we would like 4-5 thousand back so we will have a cushion for emergencies and get car fixed.
When I call a lender, which I’m sure will not be a problem with getting the approval, what do I ask for? My MIL said she heard that you can’t buy a rental property with no money down.
You can buy a rental with no money down as long as you have 680+ scores (some others say 620), if you can document your income and it qualifies the rates aren’t too bad.
In case you were wondering in my opinion I don’t think you should pay for any of the costs associated with buying or selling the home since you are doing them a favor. On rental properties usually 3% is the most that the lender will allow the seller to pay in terms of the settlement costs. 3% of $123,000 is $3,690 which might cover all of your costs, might not. That should be built into the sales price. There are probably also transfer taxes, so figure another $2k. Doing some rough math it looks like they’d receive about an $11k cash-in-hand profit if you purchased it for $123,000.
I agree with 4EMM…there is no deal here. Only thing that can happen is your credit gets shot because they can not make the payments. never rent or leaseback to the seller, especially when they are having problems financially which is forcing the sale in the first place. You do not have 20-30% equity in this purchase, which also makes it a bad investment for a rental property. chances are you will not cashflow this investment and have no quick way of dumping the property if things go bad since there is no equity in the home…Tell your friends that your sorry, but from an investment standpoint, this is not a doable deal and poses to must risk for me…
Remember fall in love with the deal, not the property or the person your dealing with. This is why friends and family do not work well in the investment world when they become the tennants…
