seller backed loan, how to execute?

Question

I think I have a great opportunity being offered to me, I just don't know how to execute it. a fellow investor ive done deals with in the past has a rent to own contract on a property at $155k. He is offering the house to me at $120k as long as I'll still honor the rent to own tenant at $155k. I'm absolutely fine with honoring that. easy $35k profit... But heres where it gets tricky, the investor said he is willing to carry the 120k for up to 12 months. Now what do I do?? Is there some way to get the house titled in my name and then take a loan against the equity of $150k to pay him off? This would save me the 20% down so essentially I'll get the house with next to no money out of pocket. I was also thinking of seeing if he will sell it to me at $80k on paper so I can save a few grand on the 20% down, and I'll give him the other $40k in 6 months from now when I do a cash out refi. this is pretty difficult to explain, hopefully someone picks up what I'm putting down!

Account Closed · Answer

That being the case, you might want to take the property as a land contract, making payments to him and cash him out in 12 months. That means you want to ask a lender how long their seasoning requirements are, if they will refinance a land contract for rate and term and what loan to value they will do. There are over 3,000 lenders out there, so if one says "no" move on to the next. There are other ways to do this too, but that is the most direct if you don't want to put money down. It is the 12 month payoff that is the limitation.

Account Closed · Answer

On a rent to own contract, usually he does not "own" the property so there is no way for him to convey ownership to you. You can't sell what you don't own. What you can do though is have him assign the contract to you for a specified amount. There are a couple of problems you have to work out. Twelve months is a short period of time for this type of transaction. It is unlikely you will be able to get financing on this since you won't "own" the property. You will "own" the "right to buy at some future date", but not the property itself until you exercise the option.The other possibility is that he actually has had title convey to his name. Unlikely, but possible. In that event, he can do a land contract to you and proceed that way. But, banks won't lend more than 80% of the sales price or of the value of the property, whichever is lower. So, they will have an appraisal done and choose the appraisal if that is lower or they will choose the sales price if that one s lower. It is just the way they do business. It's their money and they want to protect it. Same goes for your thought of "sell it to me at $80k on paper so I can save a few grand on the 20% down". Banks have seen that one too.Banks require "seasoning". It can vary from 6 months for some, 12 months for others that they want to see payments being made on the property before they will lend on it.And then there is the "honor the rent to own tenant at $155k." I don't know what that means. If the tenant is the previous owner, that is a real problem in this scenario. If it is a tenant who has been given the right to buy the property in the future through a "rent to own" that is even a greater problem.One of the things you would have to find out is who's name the Title is actually in. A Title company can give you that information. Then you need to look at the agreement your investor buddy has with whomever and make sure it is with the person(s) on Title. Then you would have to find out who occupies the property and what their written/verbal agreements are. You need to know who is making the payments on the mortgage if there is one and who is paying the taxes. It can all be worked out, but you are still faced with paying the agreement off in 12 months. I would talk to a couple of hard money lenders and possibly a friend or family member who wants to invest some money for a period of time until you would be able to get the property into your name, have the property season and then refinance to cash them out.

Account Closed · Answer

If you want to give this deal serious consideration talk with a VA real estate lawyer.....................

David Sanford · Answer

@Mike M. Thank you much for the reply! So the guy offering the house to me owns the house outright so there is no mortgage on it and he pays the Tax on it since it is titled in his own name. The "rent-to-own" tenants occupying the house have a written contract to buy the house at $150k in May 2019.