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I live in Florida. Live in paid off primary home. I have a rental in Phoenix area. Mortgage has $118K balance. 16 years old and still on original a/c and roof. So starting to wonder about them. Cash flow positive but I could probably raise the rent $800 to $1,000 if I want. It's renting for $1,200.
My brother-in-law moved 50 miles south of me 7 years ago. We are on very good terms. I actually found the house he lives in for him before he moved. It was dirt cheap at the time for $135K. In the end just before signing papers he almost got cold feet and I was thinking "If he backs out, maybe I ought to buy it". But he ended up buying.
He did a lot of initial fixup/cleanup on home that had been neglected. But once he got it to a certain point he just stopped. He has 7 year old roof and about a 3 year old a/c.
Zillow lists his value at $308K. USAA at $325K. I actually think those are a little high but whatever. His mortgage balance is about $88K.
But now, the combo of home insurance rate increases (or threats of increases) and that over $200K of equity are dazzling him. He's thinking "maybe I'll cash out and move to another state" and rent. Short term thinking in my mind.
He's only paying $620 a month now. He says "I'd be ok if I just didn't have that house payment..... " Of course if he moved, he'd have a house payment but he'd also have close to $200k
We're both early 70's, he's widowed I'm married.
I just keep thinking is there a creative solution where I could control/own the home and just let him live there for free? One that gives him a chunk of cash ($100K ?) and lets him live there for free? Hopefully keep that $88K mortgage as is?
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Since it is not permissible to do private reverse mortgage...
Search info on 'life estate'.
Usually more applicable at age 90+. Do not do a Florida Enhanced life estate!!! (Grantee can take out additional mortgages )
'Shared Equity ownership' is another possibility, but may not be allowed with existing mortgage.
Probably easiest to do a personal note, with house as collateral (lender (you) in second position). Risk... Owner defaults on mortgage, insurance, or deferred maintenance. Or.... Takes your money and runs, and house is in legal limbo for years.
The right contract (and relationship) could be mutually beneficial.... Or not. Lending within Families often results in not. But you know what is current likely risk scenario.
Ideally, he would understand and agree to your objectiives, and use to his benefit too*.
* if he chose to leave the area / house before mortgage is retired, he would be willing to let you manage and rent it out for him, while he holds the mortgage, (and gets the income from you to support his rents in new area). Sounds like he is strapped, and could not get an additional mortgage elsewhere. That can be +/- for you.
Have protective clauses in any contract to free your interest and refund your obligation, if things go south. That can be touchy, if he has financial problems.
I live in Florida. Live in paid off primary home. I have a rental in Phoenix area. Mortgage has $118K balance. 16 years old and still on original a/c and roof. So starting to wonder about them. Cash flow positive but I could probably raise the rent $800 to $1,000 if I want. It's renting for $1,200.
My brother-in-law moved 50 miles south of me 7 years ago. We are on very good terms. I actually found the house he lives in for him before he moved. It was dirt cheap at the time for $135K. In the end just before signing papers he almost got cold feet and I was thinking "If he backs out, maybe I ought to buy it". But he ended up buying.
He did a lot of initial fixup/cleanup on home that had been neglected. But once he got it to a certain point he just stopped. He has 7 year old roof and about a 3 year old a/c.
Zillow lists his value at $308K. USAA at $325K. I actually think those are a little high but whatever. His mortgage balance is about $88K.
But now, the combo of home insurance rate increases (or threats of increases) and that over $200K of equity are dazzling him. He's thinking "maybe I'll cash out and move to another state" and rent. Short term thinking in my mind.
He's only paying $620 a month now. He says "I'd be ok if I just didn't have that house payment..... " Of course if he moved, he'd have a house payment but he'd also have close to $200k
We're both early 70's, he's widowed I'm married.
I just keep thinking is there a creative solution where I could control/own the home and just let him live there for free? One that gives him a chunk of cash ($100K ?) and lets him live there for free? Hopefully keep that $88K mortgage as is?
You should talk to a real estate attorney to see what you can legally do that would benefit you both.
Can the mortgage be assumed? Owner financing but he still lives there, etc.?
Are you thinking of adding this home to your investment portfolio as a way to help your BIL or because you want to add to your investment portfolio? Are you considering selling the house in AZ or raising the rent to help pay for your BIL's house?
Proprietary reverse mortgages can have features that other reverse mortgages don’t, such as equity-sharing provisions, also called shared-appreciation provisions.
The proceeds of a proprietary reverse mortgage can go toward anything, including paying off the homeowner’s existing mortgage to free up monthly cash flow. Unlike HECMs, proprietary reverse mortgages do not restrict the amount a borrower can withdraw in the first year of the reverse mortgage term.
In every way, the proprietary reverse mortgage is the less-restrictive option
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For further creativity (on your end), you can do this through a -'self-directed-IRA'.
I use an LLC, within my IRA for various real estate investments. +/- there are strict rules.
1) cannot personally benefit you / IRA holder
2) cannot co-mingle funds
3) you don't get any personal deductions, or losses (it's all inside your qualified IRA)
4) must be managed by 3rd party (holding a RE note / proprietary reverse mortgage would simplify this, as you are not managing tenants).
I did a lot of research on the options within my Self Directed IRA holdings of RE, and my custodian ($400/yr) is very flexible, as long as I comply with their reporting requirements and the rules of IRS. My LLC, within my IRA will have several different types of holdings, as I convert tangible LT Properties to RE notes / income stream, as I age and less interested in tenants, and more interested in holding 8% income vehicles, on appreciated properties.
The Self Directed IRA is very simple for reporting and taxes, especially within income tax free states. (2 min/ yr... What is your current valuation within IRA? - submitted to custodian). Since I'm using a tIRA, I will take all my RMDs from a single tIRA acct, rather than bother my self-directed IRA with RE holdings. Those RMDs will be QCDs, maybe 8.7% Charitable Gift Annuities (payable after age 80). - continuing on the creative theme.
I could almost never recommend any sort of reverse mortgage. Selling should be a last resort. But if he moves to another state and wants to get a cheaper home, there are plenty of areas he could pay cash for a house. He's still have taxes and should have insurance. However, would those be significantly lower than his current payments? Does he he really want to move?
But now, the combo of home insurance rate increases (or threats of increases) and that over $200K of equity are dazzling him. He's thinking "maybe I'll cash out and move to another state" and rent. Short term thinking in my mind.
Insurance is a pretty big and scary unknown right now in Florida. I'd plan for continued and likely large increases. If your insurance company leaves the state or drops you, the next one may require a new roof even if the existing one has many years of life left. Also be aware that any change in ownership will trigger a new property tax basis. If he homesteaded when he bought 7 years ago, that increase could be substantial. Good luck whatever you do.
Insurance is a pretty big and scary unknown right now in Florida. I'd plan for continued and likely large increases. If your insurance company leaves the state or drops you, the next one may require a new roof even if the existing one has many years of life left. Also be aware that any change in ownership will trigger a new property tax basis. If he homesteaded when he bought 7 years ago, that increase could be substantial. Good luck whatever you do.
^^^^^
This!
I've been in the Tampa area since 1996, and in the last two years the homeowner's insurance on my 22-year-old home with a new roof and wind mit cert went up 40%, and the premium for this year went up around 30%. My escrow will be short again this year.
Why don’t you pay off balance of the mortgage, have him put the house in a Trust that names you as beneficiary and your own children as contingent beneficiaries (this shouldn’t trigger any homestead or insurance rate changes) and you pay all expenses on the property except utilities and let him live there rent free?
Obviously this is a high price to pay and involves risk on your part…only you can determine if this makes sense for you.
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