Seller Financing with Rent back, POSSIBLE?

Question

I would love to hear anyones thoughts on how they would structure this

Seller is facing tax foreclosure.

Mom is 94 and daughter is in her 60's.  Mom does not want to move because of how long she has lived there.

Approached me wanting help to stay in their home.  Offered to buy the home with seller financing and renting it back to them.  Will immediately raise the money to pay them off and continue to rent to them.

House is in very bad condition inside (hoarders) but is in a great area and purchase price is 50% of ARV.  Need about 120k fix up for a total value of 600k.

Will make it apparent they need to clean up the house if they want their lease extended.  All intentions are to help them continue living their and also clean up the inside.

Seller has first right of refusal to purchase back for x amount still below FMV.

Bill Gulley · Answer

Working on it now Brian, since it touches on all strategies I'm putting it ahead of notes.

With all the changes in real estate, accounting requirements, taxes and financing, it's time to bring this out of my tool box!

As always....  :)

Brian Gibbons · Answer

@Bill Gulley

Looks like I can benefit greatly from a TIC agreement class ! :)

Bill Gulley · Answer

LOL, Rome wasn't built in a day you know.

I've used it in rehabs, flips, leasing and wholetaing now that it has a name, simply selling publicly. I'll have to tell the story of using this strategy with 7 properties between a couple who had split the sheets, but not the properties to force sale, pretty funny because of who was involved.

I'll stop talking Phillip and get back to typing!  :)

Phillip Tillotson · Answer

Less talking and more course writing! :) I'm equally excited to see this course come to life!

Bill Gulley · Answer

No question about it Brian, you need to learn how to play TIC, TAC, TOE.

With a TIC Agreement you can have the power of sale, no foreclosure!

An L/O, you're not in title, neither gives you consent to make repairs or improvements, obtain a building permit, be in a refinance position instead of a purchase position as the owner is. I'd rather not be in a master lease sandwiched between a tenant and an owner, but I can lease as an owner in a TIC.

Options can turn on you in your tax return. You can get hammered as an installment contract. A TIC is ownership to the degree of interest taken. There can be tax advantages!

See what happens when I slow down just putting out fires on BP and take the time to start educating instead of chasing bad advice? LOL :)

Brian Gibbons · Answer

@Bill Gulley

Does a TIC have greater benefits than a lease to buy?

Bill Gulley · Answer

Be sure you understand the tax rules as to a sale-lease-back with an option to buy as well as Dodd Frank if you're a dealer in the RE business.

You can have full control under a TIC by agreement.

If you buy this, frankly, dealing with a hoarder can be very trying and you can't really evict for property being inside. Be aware too that an option cannot have performance required in connection with the lease, that becomes an installment contract now. Again, check the tax laws as to the optionor treating the option as a sale. You can obtain a power of sale with the TIC Agreement, if they have equity in an installment sale you'll be foreclosing.

Talk to your attorney! Good luck :)

Josh Norris · Answer

@Bill Gulley

Always appreciate your input and articles.  Very interesting strategy with TIC, I will definitely be looking more into this and discussing with my attorney about how best to draw it up.  The problem that I see in some circumstances is the fact that you do not want to be involved with the current home owner and would rather wash them away from any decision making abilities.  I would rather buy the home and  have them buy it back due to seeing the condition they have let the property fall into.  They still have all the opportunity to buy it back but i would not want to enter into any type of partnership with them.

Bill Gulley · Answer

I suggest, if you really want to help them and end up with some cash flow, small cash flow without a full purchase of that place now, read the blog I just posted "Let's pay tic, tac, toe as it can be simpler with you in charge and a buy out with terms under seller financing. It also assures them of a place to live! It fits what you want to do! Good luck :)

Seller Financing with Rent back, POSSIBLE?

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