Any issues with this deal?

[Steve Burrell]

Last year I bought, rehabbed and rented a home in the Denver area. The next door neighbor got my information, and contacted me a few months later. He’s going through a divorce, and currently in chapter 13 bankruptcy. He is court ordered to sell his home, and would like me to buy it and rent it back to him.

This has been a few months of discussion, but here is the bare bones of what we landed on as a possibility.

$200,000 purchase price (it is worth about $35,000 more, and is in poor condition).

He offered to pay $2000 per month, this would cash flow roughly $850 per month. $2000 deposit

The first year would be a one year lease, paid in full using funds from the sale of the house. He will still have a good chunk of change left.

The house certainly has some issues, I’ve toured once. I will have it discover any BIG issues that I can’t see with an inspection. But let’s assume it’s ok.

At first glance, it’s seems like an awesome deal. Even if he bugged out after a year, I rehab and recoup major equity. I know the neighborhood, and it’s a sold investment at $200k as is. And with a year paid in advance at a solid cash flow. What more could you ask for?

So what am I missing here? I certainly don’t have the experience most people reading this will.

Thanks for your input!

[Bill S.]

@Steve Burrell so this guy has demonstrated in spades he has zero financial wherewithall. You are hitching your ride to a boat load of trouble. In one year he will be broke and won't move and you will have to evict him and he will fight you in court with a lawyer. That is the most likely outcome, probably 85% chance of this.

You need the advise of an attorney. Is the home in foreclosure (late on even one payment)? If so, then the foreclosure protection act comes into play and renting back to the owner is something the courts really frown on. You will be hosed in a major way if after a year the guy comes back and lies and tells the court you promised him this or that. The court could give him the house back and take back any money he paid you. You must must get competent legal advise. 

My not so legal advise is, buy the home outright and the guy surrenders possession to you at closing. Anything short of that, hire an attorney (someone that has handled a dozen or so of these cases) and follow their advise to a tee.