VTB - Family deal looking to explain to them Please Help

LifesMoneyPeople

New Forum Member
Registered
Ok I am looking at this kind of family deal and looking for feedback

House is 5bed 2 bath in great part of town 15min walk to college(2min drive). House is great condition just needs fresh paint and that`s about it

Sister bought house for 86k 6yrs ago and now owes around 75k

Sister is moving in with boyfriend(owns his house) so has no need for immediate money and was looking at renting this location or selling to whoever offered

Asking 129k(want to get true appraisal not realtor guesstimate but 4 houses down sold in less then a week 165+ so its a wanted area)

Would like to settle for around 110-115k or less

She is willing to take a VTB on the rest of equity she has built up but would like her current mortgage paid off

We have been pre-approved on another house for 80k from RBC homeline(this opportunity came up recently)

We also have parents that will be gifting money for our 20% down on the 80k plus we have our own money built up also.

House numbers are great because of location. Used REMA based at 115k @ 7.5% 35yrs and bringing 2500 a month in rent we would have cash flow of 750+(10% vacancy). Now our RBC homeline is cheaper then estimate

Rent breakdown

1000k a month for downstairs (girlfriend and I)(2bed 1bath)

Then 3 students or young professionals share entire up stairs 500 a room all inclusive I know I can get that because my dad is charging 600 for a smaller room farther away from the college and has decent line up of tenants

So just looking for advice because I would like to create a presentation of some sort to explain my reasoning and idea in detail. My side of the family has some sort of understanding of this but the other doesn`t so I would like to create something easy and straight forward for them both like my new path and passion for real estate and will be giving me more money in the future if I can successfully be a landlord first.

Numbers again

129k

Buy around 110-115

Current mtg 76k

Preapproved for 80k RBC HELOC

Gift 25k-50k+

Rent 2500

Expenses 681(include all utilities,cable,internet,maintenance(150), Taxes and insurance)
MTG @7.5 623 amonth
Total Expenses = 1304

Idea also is a few yrs time replace entire mortgage at new place under RBC HELOC and pay off sister. Less then 5yr timeline on that(if you dont like idea explain)

Again looking to explain VTB so that everyone can understand and what my numbers should look like for them

Feel free to rip apart my ideas and plans I am open to criticism

Hope to hear from you soon and I will try to be on frequently to answer any question

LMP
 

PaulPoulsen

Inspired Forum Member
Registered
Hi Christopher,

I hope that my response doesn`t come across as overly blunt or too critical. You`re to be congratulated for taking action and for wanting to include those most important to you in what you see as a great opportunity. That said...

My initial reaction is that you`re making this transaction more convoluted than it needs to be.

A few questions leap to mind immediately. Why bother with the VTB? And if you`re living in the house and making it your primary residence and you have access to few bucks on your own, why borrow money from your parents? Couldn`t you can get away with a high ratio mortgage?

There`s a lot going on in this proposed deal and none of it should be taken lightly.
[list type=decimal][*]You`re dealing with family.[*]You want to buy using a VTB.[*]You`re looking to have your parents "gift" you money.You`re planning on renting to students.You`re going to be a landlord for the first time.You`re in Ontario where the tenancy laws aren`t terrifically pro-landlord.[/list type=decimal]Many of these issues are topics that are brought up again and again even by experienced members and you plan on combining them all into what I assume is your first deal. You may be biting off more than you`ll be able to chew.

While I don`t mean to be so blunt, I`m also confused about what you`re willing to pay your sister for her house. A house in the neighbourhood sold recently for $165,000, your sister wants $129,000 and you`re looking to pay $115,000-ish. There`s a pretty big discrepancy between all those numbers. If your sister`s house really is worth $129,000, I`d be leery about leaning on her too hard to get the price you want. I`m all for working a deal to get the best possible price but you really want to be careful when doing this kind of deal with family. All it takes to frustrate your sister is one of her neighbours or co-workers to say, "Wow! You got ripped you off!" If you really want to grind out the best price, do that with an anonymous third party where there`s no relationship to be considered about. Make sure the deal with your sister is fair all around or it might ruin Christmas for years to come!


I`d suggest doing a deal with your sister where the existing mortgage stays in her name and you buy part of the house from her on the condition that she splits future profits with you and that you`re responsible for all bills going forward. She moves in with her boyfriend and you move tenants into the house and cut your teeth at landlording. If all goes according to plan, five or ten years from now you sell the property, split the proceeds with a very thankful sister and look like a hero to her and the rest of your family. If things don`t work out for whatever reason, relinquish your interest in the property and help your sister to sell the house for a fair price on the open market. She`ll be disappointed that things didn`t work out differently but that should be the extent of the damage to the relationship. I`m sure there are other posters that will have additional/different points of view on how to best structure a deal with family.

Becoming a real estate expert doesn`t necessarily mean being an expert in VTBs and JVs and subdividing and rezoning. It just means that where others see problems and aggravation you`re able to see opportunity.

Focus on maximizing the return for your sister while minimizing your grief. I don`t think the original deal does either of those things.
 

BrianPersaud

New Forum Member
Registered
QUOTE (LifesMoneyPeople @ Feb 4 2010, 04:13 PM) Ok I am looking at this kind of family deal and looking for feedback

House is 5bed 2 bath in great part of town 15min walk to college(2min drive). House is great condition just needs fresh paint and that`s about it

Sister bought house for 86k 6yrs ago and now owes around 75k

Sister is moving in with boyfriend(owns his house) so has no need for immediate money and was looking at renting this location or selling to whoever offered

Asking 129k(want to get true appraisal not realtor guesstimate but 4 houses down sold in less then a week 165+ so its a wanted area)

Would like to settle for around 110-115k or less

She is willing to take a VTB on the rest of equity she has built up but would like her current mortgage paid off

We have been pre-approved on another house for 80k from RBC homeline(this opportunity came up recently)

We also have parents that will be gifting money for our 20% down on the 80k plus we have our own money built up also.

House numbers are great because of location. Used REMA based at 115k @ 7.5% 35yrs and bringing 2500 a month in rent we would have cash flow of 750+(10% vacancy). Now our RBC homeline is cheaper then estimate

Rent breakdown

1000k a month for downstairs (girlfriend and I)(2bed 1bath)

Then 3 students or young professionals share entire up stairs 500 a room all inclusive I know I can get that because my dad is charging 600 for a smaller room farther away from the college and has decent line up of tenants

So just looking for advice because I would like to create a presentation of some sort to explain my reasoning and idea in detail. My side of the family has some sort of understanding of this but the other doesn`t so I would like to create something easy and straight forward for them both like my new path and passion for real estate and will be giving me more money in the future if I can successfully be a landlord first.

Numbers again

129k

Buy around 110-115

Current mtg 76k

Preapproved for 80k RBC HELOC

Gift 25k-50k+

Rent 2500

Expenses 681(include all utilities,cable,internet,maintenance(150), Taxes and insurance)
MTG @7.5 623 amonth
Total Expenses = 1304

Idea also is a few yrs time replace entire mortgage at new place under RBC HELOC and pay off sister. Less then 5yr timeline on that(if you dont like idea explain)

Again looking to explain VTB so that everyone can understand and what my numbers should look like for them

Feel free to rip apart my ideas and plans I am open to criticism

Hope to hear from you soon and I will try to be on frequently to answer any question

LMP


Just to clarify, you will assume a mortgage for $75k and the owner will give you the rest on a (up to $125k) vtb?!?!?

if so
Why do you have to borrow anything from family?
Take it NOW, this vtb is like a free loc not against your bureau. Go to a lawyer and have them draft up the terms on the offer to purchase and tell them to sign here press hard.

Congrats on the deal
 

LifesMoneyPeople

New Forum Member
Registered
No your response is informative and I will try to answer the questions to my best abilities


I am young(22) and we actually been turned down mostly everywhere(mortgage brokers and banks) for a mortgage basically because I am self employed and less then 2yrs experience.

My girlfriend has a 9-5 job(less then 2yrs) as a educator at our local college because of her relationship with RBC over the years we were able to get pre approved for 80k only on her income so that is why we cant get more and probably the only reason we got it is because we can come up with 20%+ down.

I know there is many other brokers on this site and have more experience with self employed and investment properties. Never know but I will ask if anyone out there can provide a 129k mortgage for people pre approved for a 80k then feel free to email me and give me a shout. I can also print out everything I have in REMA and make a smaller version of a Investor Binder for you.

Yes this will be my principal residence at least for next couple yrs.

We have around 5% for downpayment but because of above info we needed 20% down or more if anyone wants to chime in on their experience being young and their hoops they jumped through feel free

The house that went for 165 had renoed kitchen,bathes etc all in last year. This house has older kitchen, bathes and flooring in each but still good for 10yrs+ no problem my idea is to reno them over summer months when I have extra money

129k was realtor price she has already said she would be willing to go to 120k I might just follow what Don writes and not chase the 5k when you could lose out on the whole deal

I know pushing the price could create problems that is why I am asking the forums but I do intend to make a win-win for both of us

We were thinking of something like that but the sister wants no connection with house if possible she wants to sell her boyfriend want her to rent so thats why I thought VTB would be good because she would be mortgage free and getting a monthly income

I come from a poor family and poor relatives I never had that ask for money option until I started throwing myself into real estate entirely that this gift money has come forward as family see potential and wants to give me a chance for a better life. Also being self employed I have to deal with VTB, private money because it is harder to get on this side of the fence or put most of my ideas/plan on hold for 2-3yrs till I can truely show up income to the banks

LMP
 

LifesMoneyPeople

New Forum Member
Registered
QUOTE (BrianPersaud @ Feb 4 2010, 06:45 PM) Just to clarify, you will assume a mortgage for $75k and the owner will give you the rest on a (up to $125k) vtb?!?!?

if so
Why do you have to borrow anything from family?
Take it NOW, this vtb is like a free loc not against your bureau. Go to a lawyer and have them draft up the terms on the offer to purchase and tell them to sign here press hard.

Congrats on the deal


No assumable mortgage

Our 80k mortgage was based on another house on not as good part of town

The idea was to have our 80k mortgage payout her 76k and her to have a VTB of the rest

We are taking a gift from family because we have 5-10% down saved up but not 20% that seemed to be the barrier so far

Wouldnt you assign the VTB as second mortgage behind the RBC one???(your saying dont register???) 80k mortgage with equity of 125k so no taking of a gift because I have 65% down already???

Because to everyone else it would be she sold to me for cheaper price then she bought
 

GaryMcGowan

Inspired Forum Member
Registered
Does your sister need to have cash today? If so you could transfer the gift to her which would become your equity in the property.
Can she stay on title and mortgage? You make the payments + taxes + ins. She would hold the mortgage for you. You purchase the property from her in 2 - 3 years at an agreed price. (115 - your deposit to her). This is when you are able to get a mortgage on the property from a lender and the title transfers to you.
This is what Brian was eluding to.

The win - she gets her property sold while helping you out. Maybe you give her a bigger piece of the pie for helping you out.
 

LifesMoneyPeople

New Forum Member
Registered
QUOTE (GaryMcGowan @ Feb 4 2010, 07:10 PM) Does your sister need to have cash today? If so you could transfer the gift to her which would become your equity in the property.
Can she stay on title and mortgage? You make the payments + taxes + ins. She would hold the mortgage for you. You purchase the property from her in 2 - 3 years at an agreed price. (115 - your deposit to her). This is when you are able to get a mortgage on the property from a lender and the title transfers to you.
This is what Brian was eluding to.

The win - she gets her property sold while helping you out. Maybe you give her a bigger piece of the pie for helping you out.

She would like cash but boyfriend doesnt see a immediate need and thats why he rather see the location for a rental because he sees the potential both in growth and renting(but both have no experience other then being home owners)

I was also thinking about a Rent To Own kind of deal but I would like to have full ownership if possible because it is one of the nicest neighbourhoods in town and would like to get the appreciation over the next couple yrs but I do like the idea of her agreeing to a price now

Her original offer was us to rent 750+utilities which is kind of crazy considering the potential of the area. Again it would work but would want no hassles thats why I am looking for a straight buyout

LMP
 

GaryMcGowan

Inspired Forum Member
Registered
If she agreed to a price now i.e. 115k, you would see the appreciation over the next few years. If you buy in three years and it appreciates at 3% a year assuming the property is worth 125k. The property would be valued at 136k
FMV 136k
Your purchase price 115k
Equity 21k

You could get a 80% ltv mortgage for 108k
Your initial deposit 25k which means you still owe her 90k (115-25=90)
You have 108k from a lender (108-90=18)
You would be left with 18k minus all closing costs. This would put money back in your pocket when you bought from her.

But as you said you do not want any hassles. This is just one way to look at it.
 

invst4profit

New Forum Member
Registered
In regards to dealing with family, although many recommend it for getting started, I see nothing but trouble. Considering the worst case scenario what would be the outcome, family wise, if you ended up with a professional tenant and lose the house to the bank.

Working with family, other than maybe as a partner in a business, is in my opinion a major gamble not worth taking. Family and money do not mix. Down side is emotionally destructive.

Buy the house if possible but do not involve family through VTB, loan or favours.

Also you should double your estimate on expense they are far too low and avoid (like the plague) all inclusive properties in Ontario.
 

BrianPersaud

New Forum Member
Registered
QUOTE (LifesMoneyPeople @ Feb 4 2010, 06:54 PM) No assumable mortgage

Our 80k mortgage was based on another house on not as good part of town

The idea was to have our 80k mortgage payout her 76k and her to have a VTB of the rest

We are taking a gift from family because we have 5-10% down saved up but not 20% that seemed to be the barrier so far

Wouldnt you assign the VTB as second mortgage behind the RBC one???(your saying dont register???) 80k mortgage with equity of 125k so no taking of a gift because I have 65% down already???

Because to everyone else it would be she sold to me for cheaper price then she bought

VTB would be a second mortgage and the lawyer for the seller will register it on title...

to clarify, no bank will give you a line of credit for the difference between your $80k and the $125k....this 2nd mortgage will not show up on your bureau

Good luck on your deal
 

LifesMoneyPeople

New Forum Member
Registered
QUOTE (BrianPersaud @ Feb 5 2010, 09:32 AM) VTB would be a second mortgage and the lawyer for the seller will register it on title...

to clarify, no bank will give you a line of credit for the difference between your $80k and the $125k....this 2nd mortgage will not show up on your bureau

Good luck on your deal

No I understand that I wont get the difference between 80-125k

Just wanting you to clarify why you think I could do the deal with no gift

LMP
 

LifesMoneyPeople

New Forum Member
Registered
Ok went over it with the family this weekend and looks like we can come up enough money that we dont have to take a VTB with the sister.

It will funded with 80k mortgage and gift

If you have anymore questions or comments feel free to post

LMP
 
Top