Friend willing to get creative to sell me his Lake house. Ideas?

Question

I have a friend who owns a 1100 sqft cabin on a prominent lake. He's building on the lake so he doesn't need this anymore. He owes $200k and it was appraised at $300k a few years ago. He's willing to sell it to me for $259k. I plan on airbnb'ing it and using it for my family when it's not being rented. I think I could easily break even every year by doing that which really is just my goal. I have 3 rentals with mortgages in my name that all cash flow $200-$400 month each. I have 3 more with a partner in an LLC where 2 of the mortgages are in my name and we are cash flowing $400-$600 each house. I make about $300k from my job but am not sure a bank would loan me on another property and I'd rather not put down 20% as that would leave me with very little reserves for all the properties and my own emergency fund. My buddy is willing to get creative. I'm not sure he can owner finance since he has a mortgage but could I form an LLC and have him quick claim deed it to my LLC and just pay him the difference and essentially pay him monthly so he can pay the mortgage? OR is it legal for him to sell it to me for say $280k and then give me back the $21k to refill my reserves? What other creative options would there be?

Jay Hinrichs · Answer

you could do a wrap.... with both your eyes wide open... if for some reason the underlying got called between the two of you ... you would need to cash it out or refi or sell.chances are it won't get called.. but the mortgage stays on your friends credit .. so he may not like that.

Jay Hinrichs · Answer

@Brent Coombs definitely a different mind set between cash flow and appreciation.in non appreciated markets there simply is no reason to own a rental unless it cash flows and substantially other wise there are far better investments than real estate.Brandon,I think my answer above would get you where you need to be... or want to be. Needs Seller cooperation and everyone understanding the pit falls

Brandon Redfern · Answer

Thanks Jay. I don't know a ton about those but will do some research and see if it's something he would do. Appreciate the response!

Brandon Redfern · Answer

Brent Coombs so do you know banks that will finance a property for 10% or less with a decent interest rate. If so please send me their contact info. Rather than being a condescending troll if you had read my question I don't want to put down $50k+ for a property that is not the best investment short term. If you'll notice this is in the Creative Financing forum. That was not unintentional. Maybe if I spent time looking for a conventional loan I could find one but then I still have to put down a bunch of money that I'd rather use to buy another rental property or two. This purchase is not necessarily a great investment financially but more of an investment into my family and memories with good long term potential as well. But I feel as a 34 year old and where I'm at I've done ok. Had I known that I had to explain every facet of my life and my investment strategy on everything else so that Mr Combs would approve of my desire then I would have taken a little more time. :) Any other thoughts?

Brent Coombs · Answer

Nope. No helpful response. I just fail to see why anyone on $300k/y can't get their own finance for a $259k holiday home, without needing to be "creative". You have the WRONG Lender/s*! Sorry...* (Or, they could've calculated that you're showing signs of too-much-too-quickly).

Brandon Redfern · Answer

Brent Coombs was there a response in there? I could go write another 4 pages explaining why I've done the things that I've done but I thought the details surrounding this were sufficient. Just looking for some creative ways for this particular situation.

Brent Coombs · Answer

@Brandon Redfern, my guess is that the $2k/m you're getting out of your current investments shows a TERRIBLE return-to-value ratio (cash-wise), right? ie. the portfolio's worth say, $2M?Against which, you owe say, $1M? (I like making up stories, reading between the lines, OK?)Being on $300k/y, it DOES make sense for you to invest for appreciation rather than concern yourself with such mundane ideas such as: Cash-on-Cash return.So, I'm also guessing that you're not super-concerned whether your airbnb idea is a cash cow - so long as its location will ensure continued growth in value?It almost looks like you're too scared to suggest that you would consider investing in property that doesn't make you CASH-money on a month-to-month basis! (BP does tend to shake its collective head at such a "gambling" approach).Me? I'm just wondering why, with $25k+ in your wallet EVERY month, you even need to ask?...