Creative Deal Suggestions

[Michael Temple]

I have a potential property coming up that I could buy creatively, but wanted to get some opinions on the best way to handle it...

A friend of mine from childhood said he has an aging aunt in poor health whose is now a widow needs to sell her house. The house is worth about $180K and she owes $99K on it, but it needs some work. She is willing to sell the house to us for what she owes ($99K).The monthly payments are $950 per month (PITI).

Here's the catch. She can't afford to stay there with these payments. She really can only afford about $700 per month, but doesn't want to move. Even if she refinanced, which she did a couple of years ago with the current taxes and insurance plus the payment she still can't afford it. So, she is willing to deed or sell it for the amount owed as long as she can continue to live there for $700 per month max until she can't any longer due to health reasons.

It is in a local hot suburb on an acre of land, which is unprecedented in this area. With the level of appreciation if the house were fixed up it could easily sell for $200K or more in 2-3 years.

My buddy wants to partner on it. If we take it over we will get into a negative cash flow ($250 per month) plus any repairs/expenses for undetermined amount of time. We would split the negative cash flow and expenses each month, which wouldn't be terrible. Our deal is in the upside when she no longer lives there, which could have equity of $100K or more by then. We could rehab it and sell it, rehab and rent it, which would easily rent for $1,500 per month or more. The main unknown variable is how long we will be funding this negative cash flow until we can do something else with it. Whatever we do in the future would be split 50/50 between my buddy and me.

We could probably just have her deed the house to us and take over the mortgage (my preference) or we could refinance her out of it and pay that, which I don't really want to do.

So here are my questions:

Would you do a deal like this with a big upside, but an unknown time frame on the negative cash flow?

Would you just take it over subject to the existing mortgage or refinance to make it "clean"?

Any other approaches someone would consider that I may not be thinking of?