| Need Advice on a Home Purchase Im About to Make. |
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GHirsch
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| Need Advice on a Home Purchase Im About to Make. |
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This is the scenerio. My aunt and uncle cannot make their mortgage payments and are in about $30k of debt and owe $417k on there mortgage. They have a 2 family home in North Merrick which has an estimated value of about $560K. They will not be able to come up with the money in time to prevent the bank from foreclosing on the house.
This is where I get involved and need advice. They are willing to sell the house to me for $500K. As it stands now I am leaning towards a 30 year interest only nothing down mortgage of $417K. Upon purchasing the house I would issue them $35K to pay off their debit to save their credit line so they can eventually purchase a new home. The remaining $48K would be held in an escrow account. They will be signing a contract to rent from me at $2500 per month for a minimum of 1 year and split utillities which average $600 a month. They would receive the remaining $18K after their 1 year of renting is up in which I would find a new renter and be able to charge them $3K a month.
This is where I am not sure if I am approaching this whole situation correctly. Is a 30 yr nothing down interest only mortgage a logical thing to do? I am afraid of where I may be after the 7 year locked in rate expires, if interest rates skyrocket. Im trying to guage that against on how much the house will probably appreciate. If this all sounds a little fuzzy I appologize, its my first home purchase. I was also told that the interest can be 100% written off. Any advice is so appreciated.
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Mon Dec 05, 2005 2:48 am |
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efflandt
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I'm a little fuzzy on how you are going to get $500k out of a $417k nothing down interest only mortgage. And have you considered property taxes and insurance?
Have you talked to someone who would loan you this money and what it would cost? The interest rate for non-owner occupied may be somewhat higher that it would be for your own home. And if there is any homestead exemption for property taxes, it would not apply.
100% financing for a rental is usually a bad idea. Will you be able to make the payments if you cannot find a renter willing to pay you more than they would to buy the place themselves?
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Mon Dec 05, 2005 4:28 am |
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bong12187
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| Re: Need Advice on a Home Purchase Im About to Make. |
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quote:
Originally posted by GHirsch
This is the scenerio. My aunt and uncle cannot make their mortgage payments and are in about $30k of debt and owe $417k on there mortgage. They have a 2 family home in North Merrick which has an estimated value of about $560K. They will not be able to come up with the money in time to prevent the bank from foreclosing on the house.
This is where I get involved and need advice. They are willing to sell the house to me for $500K. As it stands now I am leaning towards a 30 year interest only nothing down mortgage of $417K. Upon purchasing the house I would issue them $35K to pay off their debit to save their credit line so they can eventually purchase a new home. The remaining $48K would be held in an escrow account. They will be signing a contract to rent from me at $2500 per month for a minimum of 1 year and split utillities which average $600 a month. They would receive the remaining $18K after their 1 year of renting is up in which I would find a new renter and be able to charge them $3K a month.
This is where I am not sure if I am approaching this whole situation correctly. Is a 30 yr nothing down interest only mortgage a logical thing to do? I am afraid of where I may be after the 7 year locked in rate expires, if interest rates skyrocket. Im trying to guage that against on how much the house will probably appreciate. If this all sounds a little fuzzy I appologize, its my first home purchase. I was also told that the interest can be 100% written off. Any advice is so appreciated.
I don't understand. The bank is about to foreclosed on them and you are buying it for 500k when all they owe is 417k + 35k (for past dues i believe)? 417k + 35k = 452k. Why would you want to buy it for 500k when you can buy it for 452k. Buying a half a million property with only 60k appreciation to me is a bad deal. Additionally, if you know you can rent it for 3k per month, why settle for 2.5k? Remember this, you will be putting yourself on the line here and no one is going to take care of you once the bank starts going after you. Interest only loan for 500k 30 yrs amortized will run you 3333.00 not including property tax and insurance. Are you buying this property for appreciation purposes (gambling in my book) or for cash flow. Are you willing to lose money on a monthly basis for 7 years (when you refinance for another 500k?). Think hard before you jump into this bad deal. However, if they sell it to you for 452k, i will take it in a heartbeat...
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Mon Dec 05, 2005 6:05 am |
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GHirsch
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I knew this was going to be diffucult for a novice like me to explain it correctly so thanks for you patience.
I will be buying the house for $500k. Of that $500K there is a $417K mortgage I will be taking on the house. It is actually broken into 2 mortgages, one for $100k and the 2nd for $400k to avoid PMI. The remaining $83K in equity that the sellers have left will be put into an escrow account that will be used as collateral for rent. In a contract we are having made up they can not touch this remaining money until the move out. The reason I am only charging $2500 a month in rent is because the person Im buying the house from is a family member and this is all they can afford. As it stands now they agree to use that remaining $83K to pay their rent with for the 1st year. After the 1st year they will be moving out. Upon moving out they will get the remainder of the money in escrow. One year at $2500 a mo rent is $30K leaving them with $53K in escrow. At the end of the one year they can take the remainder of the money put it towards rent if they decide to stay. So yes I will be taking a little bit of a hit the 1st year but I did get the house for way under market value so I think I still come out ahead.
My monthly mortgage payments work out to be with taxes are approximately $3500 a month ($1K a mo out of my pocket which I can easily handle). After the 1st year I am confident I can find a renter for $3K a month for the whole house or 2 renters (One on the 1st floor for $2800 and one on the 2nd floor for $1000). In the mean time because Im not putting anything down I can take $150K of my own liquid money assets to invest into other things and make it work for me. Also because I am an S Corp I can claim 100% of the interest also and being in a low tax bracket get a good portion of it back at the end of the year.
What my main goal is to keep my personal cash funds as liquid as possible and cover the majority of my mortgage payments with rentals. At the same time I will be helping out a family member by saving their credit so they can get a mortgage for a new home and a year to get back on their feet. I feel pretty comfortable with this particular deal since I was able to get the house for about $60K below market value due to the sellers of the home's bad circumstances.
I hope this somewhat clears it up.
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Mon Dec 05, 2005 9:02 pm |
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reminent
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Have they considered refinancing their home to save it from forcloser? There are a lot of tax breaks that you would be able to recieve if you do infact purchase the home, considering the loss in income each month from your rental property. In your financing options have you checked with a bank to find out rate and 100% financing options with the property being a rental? I would think that loaning them the money to catch up on rent and selling the house with you getting your money back would be the safest way to go since the house is 60k under market value.
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Tue Dec 13, 2005 7:49 am |
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kat
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I just started reading about this real estate stuff, so I don’t think my opinions are very good but here is my 2 cents anyway.
Your family is going to end up with 53k in the end right? Y don’t u get a 200k loan pay off the 30k of debt and give your family 53k+. then they sign the house over to you with the mortgage. Then either sell or rent it out for positive cash flow. Is that possible? Or am I missing a few major points?
(prepares to get flamed)
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Fri Dec 23, 2005 7:39 pm |
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