This is an odd one, but I figure you guys might be interested.
My sister got divorced, but wants to stay in her house that they bought a few years ago. It needs work.
Instead of just selling the house and moving on (a much simpler solution!), she is trying to stay.
She can maybe barely afford to pay the mortgage, but would have to buy out her ex’s share in cash so she is trying to borrow money from relatives…basically it’s a mess. It’s a stretch for her to afford it.
I didn’t want to get involved, but the house is in a good suburb of Cleveland, actually a good place for renting houses.
Why don’t I just buy the house? This is relatively straightforward financially, the house will cost like $250k or so. I don’t think this will be some significantly profitable investment, but looks like rent should just about cover monthly costs right off the bat with a 20% down.
This is much more sane from a family standpoint than having her “borrow” all this money from relatives that they probably won’t be getting back.
Of course she would like to gain some equity in the place, and I’m open to that. What’s a good structure to share equity in a house with some conditions on how much of her rent she pays over the years?
If she doesn’t pay for any of the DP you should be the sole owner on title. So at least you will have all the upside if the house is ever sold. But why would she move if she doesn’t need to pay a dime?
Well she would pay rent. At least that way she could stay in the house (her reason is not wanting to move away from neighbors and friends).
And on top of that, I would negotiate that she could gain some of the equity. Based on exactly what, I’m not sure, but surely but how much rent / how consistent she is over the years.
Maybe I get the first % of profit on eventual sale and she gets the rest. Not sure. But I wouldn’t buy it outright and let her live there for free.
If you buy it and rent to her she will stop paying rent and will live there rent free anyway. Loans to relatives and friends are considered gifts. Maybe you could find a third party to make it a hands off transaction
That means you’d have to play Judge Judy with her, discerning which situation is deserving help and which doesn’t. And things will get doubly hairy if she finds another partner and the man moves in.
That is exactly what I did. I loan $ to my brother in law to buy a HDB. I let him take his time to repay me … can’t remember how long, eventually pay off… no interest charge… no document.
I’m confused how she could afford rent that’d cover all your expenses, but she can’t just guy it herself. That part doesn’t add up. Unless you’re assuming your down payment is just throw away.
If I were in your place I would definitely buy the place. It doesn’t seem like a lot of money compared to bay area standards. You have a guaranteed renter and don’t need to worry about property management. You can tell her that you are stretching your finances in buying this property, and can’t afford it unless she pays the rent regularly. If she ever stops paying you the rent you have already set the expectations. She will be grateful for the extra few grace months you might let her live there. Given the crazy money printing, real estate will go up everywhere. You can make some good money as well as feel good that you have helped your sister.
That makes me nervous about the overall financial situation and if she has an cushion for unexpected expenses. People will tend to expect family to be more lenient than a landlord they don’t know. Would she pay you or the credit card company charging 20%+ interest? Personally, I wouldn’t view it as an investment where a return is expected.
