Buying neighbor's house

Real Estate Investing Real Estate Financing
1

First, a bit of background on me. I was actually fairly active on the old CRE Online forum probably 10-15 years ago (glad to see it finally updated!! :slight_smile: ). I own 3 rental homes along with my primary residence.

My oldest daughter is 13 and has mild autism. She’s mild enough that we think she will be able to live independently but it would be nice to have her nearby to provide support if necessary. We live in a nicer part of town and finding “cheap” houses nearby is difficult.

Anyways, I was talking with my neighbors and they mentioned that they are in the process of getting ready to move. They have a small 2BR home of about 840 square feet. They are open to working something out for us to buy it.

They paid $155,000 about 7 years ago and my guess is that the home isn’t worth much more than that now. They said that if they weren’t able to work something out with us that they would probably start the listing out at $169,000. They currently pay about $1250 PITI and the market rent I’d guess would be around $1000/mo.

So, on the surface, this does not seem like a deal at all, even considering the fact that there would be value for my family and I owning this home, besides the actual numbers of the deal. I will probably wait things out with them and see how the listing goes. Personally I’d be surprised if they are able to get close to $169K for it but I could be wrong (the housing market is actually pretty good here)

Anyways, I want to be prepared in case they drop their prices.

I talked with a mortgage broker I know and going through the conventional channels everything needs 20% down. The broker and I talked a little bit about my taking over their payments (either via subject-to or a land contract), but as he explained it to me, that would cause them problems in their trying to get a loan for their new house, until / unless I had made 6 months of payments on our land contract.

So, I turn to you, my creative brethren. What is out there to make this happen?

PS - I do realize that there are some downsides to a) trying to work a business deal between friends / acquaintances and b) possibly having your renters live next door (until my daughter is ready to move in herself. Those at least are risks I understand so I’d be most interested in any ideas on how to make the transaction itself work

2

Sorry and saddened that your daughter has the problem.

That being said, I think the first and probably hardest part of this is that you have to overcome the emotion of having your 13 year old living next to you.

She will probably not move for at least 7 to 10 years and in the real estate world that is a long time.

Think of it in terms of a pure business deal.

What is the possible actual cash flow as a rental?

Do you really want to live next to your renters?

Ask and discuss with your wife these difficult question and then make your “Emotionless” decision.

All the BEST

Bill H

3

Thanks for the reply. Definitely there are some things to think about WHETHER or not to do it.

I would be more interested in any thoughts on HOW such a deal could be structured without having to come up with 20% down.

4

It is not likely you will be able to buy for less than 20% down.
As far as the purchase itself is concerned this is a very poor decision.
Chances are your daughter may never move into this home and the possibly is you may not even be living where you are in 7 years. If it doesn’t make scenes today it won’t in the future either.

If you don’t view this from a business prospective this purchase makes no scenes.

5

Of course you would not want to move in a place where your daughter would not be moving. And if it’s just for investment purpose then do not go with the deal. Probably, look for some other property.

6

I completely agree with you, Ryan. You can also buy small house, if you are looking for investment purpose.

7

[QUOTE=adamhenry;892149]I completely agree with you, Ryan. You can also buy small house, if you are looking for investment purpose.[/QUOTE]

Exactly my point!