Is this kind of financing valid?


I have been talking to a neighbor about their property they want to sell, however I do not have 20%+ to put down.

Is it possible to have them refinance the property to the agreed amount and sign the mortgage and property over to me? I would also pay the closing costs?

Why would they do that?

to avoid seller costs and capital gain tax

If they tried it I’m sure the bank would call the note due. Then you’re both in trouble.

It never sense to amaze me what the young new comers come up with and try and get something for free or maybe it could be all them snake oil books they been reading.

thank you both for your thoughts and advice. i did get this idea for a book and appreciate your time to help me understand this is not a good strategy. thanks again! :smile

if the house has been there residence they probable will owe no income tax on the gain from the sale

Hi AndyDallas,

It is a 3 family investment property where the woman inherited it in a divorce. She does not live there nor wants to be a landlord and just wants to get rid of it.

I believe what others have said,it’s not a good idea. It will cause trouble not now maybe but later.

You have the potential for a great deal.
Does the current owner owe anything on it?

See if she will owner finance it to you.
Otherwise, negotiate a low price and flip it an investor.

Correct me if I’m wrong, but refinancing wouldn’t affect capital gains because you don’t pay capital gains on the net profit of the sale (ie. SP - Outstanding Debt), you pay capital gains on your cost basis – and that is not affected by a refi.

Many people preach on here that you need to learn to solve the seller’s problems, and that will get you the deal. Why are they REALLY selling… Are they selling because they’re tired of dealing with the hassle of managing tenants, or are they selling because they need cash? If they need cash, your only real play is to negotiate a low price and wholesale it to an investor like Pete Houston said, for a fee of course. If they just want to get out of being a landlord like you said, there are a few options… the most simple of which would just be seller financing, where she wraps the deed to you.

Getting more complex, if she doesn’t want to give up ownership completely, but still doesn’t want to deal with the hassle of management, you still have a play by becoming an equity partner in the property with whatever cash you have. Then you can manage the property and take a management fee, plus you would make some on the back end because you’re an equity partner. With deals like this the partner managing the deal is usually the one with a significantly lower equity share, so you set up a waterfall structure for the cash payout of the property. Basically a waterfall structure is usually set up with multiple hurdle rates, so when the property out earns each hurdle, the managing partner’s lower equity is leveraged against the controlling equity partner; so in essence the better the asset performs, the higher the managing partner’s payout per ownership share in relation to the controlling equity partner. Since the managing partners are making a management fee, they sometimes trade what they make on the back end for more equity in the property. Just food for thought… you have many options, just continue to be creative :beer

The best method is bring some of your money to the table and when you do that the seller will listen to you. By asking the seller why he is selling is broker talk, offer the seller a good price and buy it.