QUOTE (DavidSandbrand @ Nov 16 2010, 04:12 PM) Hi Mario,
Thomas` method is completely valid, but I do it a bit differently;
- presuming the seller doesn`t need any money now (as it sounds like in your post), there would be no initial deposit or additional deposit. While not traditional, this is completely legal (and great for you - it`s a free house!)
- the purchase price of $520,000 is put as the `purchase price` on page 1
- the $40,000 of his equity goes in as `seller financing` on page 1
- the mortgage of $480,000 goes in as `assumption of mortgage` on page 1, but write in "by way of agreement for sale" and everyone initials.
- in the terms of the sale, write "This sale shall proceed by way of `agreement for sale` (AFS), to be completed by the buyers lawyer. The AFS financing schedule forms part of this agreement.
then, in the AFS financing schedule (I use Barry McGuire`s version) you outline that you will take over the mortgage payments ($1,800 PITI) from the seller, and then pay him $40,000 at closing of the contract - which will be on or before the mortgage renewal date.
To make sure everything goes smoothly, YOU make sure the mortgage comes out of YOUR bank account. same with taxes and insurance. I prefer to get my own insurance with only me on the policy name, to make it easy in the future when I have to cancel the policy. You will probably need your sellers cooperation immediately after possession to change the withdrawal account at the bank.
In doing it this way, YOU benefit from the mortgage paydown that occurs with covered by the AFS.
Also, the seller is getting today`s price. A side benefit to this is that you`re paying today`s price with tomorrow`s dollars, so you also benefit from inflation.
In doing it this way, your out-of-pocket costs to buying this property should be under $1,000 - just your legal costs. That`s as cheap as houses get, so congrats!
A quick question Mario - is $1,800 (PITI) a reasonable cost for this property? even if it`s free, if that is too much per month, it could sink you. Will you be able to get more than $2,000/month out of the property?
Thanks,
David.
Thanks a lot David and Thomas!
Well that`s a detached 4 bedroom, 2 1/2 baths, 2700 sqf in Surrey. I`m not 100% sure but I believe I can rent it out for $2,000-$2,000. I`ll double check it. There is even a swimming pool in the house.
The deal is not 100% sure, but the seller is kindda receptive to the idea of waiting for equity.
Another question that i have is, what do you do if the mortgage term is due and the tenant/buyer hasn`t been able to get a loan?
Can the seller or you get another extension from the bank or will the loan be called due if tenant/buyer needs more time?
What`s the best way to handle pre-payment penalty?
Thank you again Thomas and David!
Mario