Need Financing Advice

[Daniel F.]

Hi,

Another new member, who has found a lot of great info in these forums and would appreciate some advice on our situation. We are looking to help out some good friends, knowing full well that friends and investments do not mix well, but please hear me out. We are looking to purchase their home and rent it out to them before they go into foreclosure.

Market data for SFH in this zip code as of Nov 2018 – Median sales price: $599,900. Months of supply: 1.6. Median days on the market: 37. Median percent of List price to Sales price: 100%

The house – SFH 3 Bed, 2.5 bath, 1620 sqft. For what it is worth, Zillow puts the value at $490,000, but condition is not great, I would say C4, possibly C5. Condition could make conventional financing tough, although our mortgage broker says he can get us into a C5 with our credit and DTI. I would expect to drop 100K to get this house up to market value, but not until they move out when their kids are done with school. Current mortgage is FHA with a balance of $275,000 with liens of 70-80K, we have our title company looking into this, but the sale price would probably be close to $350K, not leaving much equity. This is a C/D house in a solid B+ neighborhood.

Us – This would be our second rental, solid equity and great long term tenants in our first. Landlords since 2006. DTI without claiming rental income from either property would be 32%.

Questions – What are your thoughts on financing this type of purchase? This seems like too long term for a sub2… FHA is assumable but we won't be living there so that probably won't work. Conventional is certainly an option, but we just want to see if there are any other ideas that we might be overlooking? Any advice on removing or negotiating liens? We know this is crazy, and we are not trying to be a charity, but financially we can afford to help out some friends in need, in return for an asset, so what terms can we add to a lease to make an easy exit, if needed? Any other considerations, besides the obvious friends and money do not mix, that we are missing here?

Appreciate any advice.

Dan