Elderly Owner wants to stay in Multifamily purchase

[April Crossley]

Looking for some creative solutions. I looked at a 3 unit that is currently owner occupied by an elderly woman on the first floor. I made her an offer and she liked it but she asked me to make her another offer as if she would stay living in the property. She is currently 82 years old. The apartment she is living in is the largest one and would rent for $850/month if she wasn't there.  She does not owe anything on the property and states she does not want to hold financing -- although I don't think she fully understands this and when I meet with her again her daughter will be present to discuss. Obviously if I let her stay at no rent -- I would offer much less.  I feel bad having her stay and paying $850/mo because I feel she won't go for that as it is a lot for someone at her age in our area.   Has anyone ever purchased a building and allowed an owner occupant to stay? Or any creative solutions to this or how it can be structured differently? 

[Chris Mason]

A seller carried note, in this case, is an opportunity for her to supplement her retirement income.

I'm going to sandbox here, obviously it's unlikely you will do exactly this, but it's a starting place:

If you want to play the long game, and are yourself young enough to do so, you could pair the seller carried note with peppercorn rent specified in a lease of $1/mo that lasts until she dies. The daughter will like this because now you've taken on the burden of taking care of mom. 

If you're still looking to acquire other real estate, get tight with your lender to set this up such that it doesn't screw with your DTI. (I'm about to make up some numbers, terms, and conditions) The interest only payment on $300k at 3% is $750/mo, and maybe you agree not to refinance it while old lady still lives, but must refinance it within 180 days of her passing away. And you should also offer to pay for the loan servicing, which might be another $100/mo. Throw taxes and insurance in, and we're probably still at <$1k/mo. Will it cashflow with rents from the other two factoring in capex etc? If it'll be a little in the green and not a financial burden, great, this is kind of a "holding pattern" setup.

So let's think of what we've put together with this:

- Old lady goes from having to rent a comparable place for $850/mo, to instead living with $1/mo in rent and receiving $750/mo for the rest of her life, allowing her to live comfortably. She does not have to move, and is in the green $1599 relative to the other option.

- Heirs don't have to take care of old lady, but STILL get their big pay-day when she passes away, and you refinance that $300k, which means the heirs will get a $300k check from your new lender as part of the refinance. 

- You get a property that's a little in the green now and not knocking anyone's socks off, but you lock it in at today's price & loan amount, not the one applicable after it appreciates for another X years. Think of someone locking in the price & loan amount of any core market Bay Area real estate in 2006 or 2012 or 2001 or 1995 or 2014 -- they win at the cashflow game in 2017 no matter what year you pick. I don't know squat about Pennsylvania, so this suggestion might be completely off-mark due to that ignorance. 

There's probably a 0.00% chance you do exactly the above, but that should get your idea engine moving. :)