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I forgot to mention that I am not high risk. I just can't get a mortgage because I don't pay myself a salary--I am an entrepreneur. I have other assets and if I stopped making the payments the property is foreclosed upon and the seller receives it back. So it is no risk to him In my opinion.
I will ask if he would be willing to pay the mortgage payments starting in January 2015. Do you think this is something that should have been going on before though, like when I bought the loft in December 2012? Have I been getting a bad deal? I want to capitalize on that as well...
As I said I did not understand what I did and always thought he was paying the payments which has not been happening. He has just been staying for free. So I feel a little stupid.
Ok now this post raised a red flag. Does the seller have a mortgage of his own that he isn't paying on? Is the property going to be foreclosed on by a bank before you even get to take occupancy? Or did you just mean your mortgage with him.
Also, a foreclosure costs a decent amount of money (when the banks do it, it is in the 10s of thousands of dollars), so it definitely isn't "no risk", but your down payment would ensure that at least they would be unlikely to lose money, unless you trash the place. We've had renters do upwards of $10k in damage to a property, though, so definitely not no risk.
But yeah, your problem is the no verifiable income, which is at least better than having terrible credit.
I figured this had just been going on for a couple months, not a couple years. I would have negotiated something different in that case, and yes, I think you probably did not get a great deal. At this point, all you have gotten is the right to buy a property whenever the seller feels like moving out. In return, they have gotten the use of your entire 20% down payment for 2 years. Was the attorney who wrote the contract representing you or did the seller's pay him? It sounds like you are being taken advantage of, from what you are saying here.
Ok now this post raised a red flag. Does the seller have a mortgage of his own that he isn't paying on? Is the property going to be foreclosed on by a bank before you even get to take occupancy? Or did you just mean your mortgage with him.
Also, a foreclosure costs a decent amount of money (when the banks do it, it is in the 10s of thousands of dollars), so it definitely isn't "no risk", but your down payment would ensure that at least they would be unlikely to lose money, unless you trash the place. We've had renters do upwards of $10k in damage to a property, though, so definitely not no risk.
But yeah, your problem is the no verifiable income, which is at least better than having terrible credit.
I figured this had just been going on for a couple months, not a couple years. I would have negotiated something different in that case, and yes, I think you probably did not get a great deal. At this point, all you have gotten is the right to buy a property whenever the seller feels like moving out. In return, they have gotten the use of your entire 20% down payment for 2 years. Was the attorney who wrote the contract representing you or did the seller's pay him? It sounds like you are being taken advantage of, from what you are saying here.
The seller has no mortgage of his own that he isn'y paying on. He is holding the note for this property and the mortgage note is supposed to start in December 2014. No it won't be foreclosed upon unless I stop paying which definitely 100% won't happen. He can't leave whenever he just feels like leaving. He has until December 2014 to stay, but has expressed interest he wants to stay longer. He would not stay for more than 3 years however due to his circumstances. We both had our own attorneys at the closing. The seller's attorney wrote the contract, and my attorney supposedly reviewed it.
I should have mentioned however, that I received an OK deal on apartment. A little below market value...
Your situation requires a detailed analysis with accurate numbers. You need to work a number of what ifs.
I am not sure there is anything wrong with simply extending the existing arrangement. You are virtually in an extended escrow situation. If the RE values involved are appreciating why not ride it out?
How would you do renting the place or living there yourself?
If you can't do the spreadsheet you need a CPA to help you do it.
Yes I can't do this spreadsheet on my own...
Something important I should have mentioned is that I purchased a commercial loft and with commercial lofts it is very difficult to get mortgages. So seller did not help me by agreeing to hold the note. He would have had to have waited for an all cash offer (as a side note I have very good credit)....Not sure if this changes things and what I should ask for when we renegotiate soon?
The note is due to start this December 2014. But we may renegotiate things as the seller would like to stay longer. If he stayed longer it would be a for a maximum of 3 more years I thinkv
Personally, I wouldn't want to commingle note terms with possession terms/caveats if at all possible. Say he wants to extend for 3 years both the deferred note payments and its beginning period for another 3 years, too .... so if he moves out next year, your payments will begin. But, if had the scenario that additional 3 years are deferred and its beginning period, regardless of tenancy/occupant, and you had a lease in place with him where the rent is equiv to the taxes and maintenance (basically what the arrangement is now), so if he were to move out next year, you still can enjoy 2 more years of deferred payments etc .... either move back in or rent it and save the (rent) money aside - pay down the principal or do whatever. It protects you, even and also benefits you too by evening the playing field and he still can enjoy 3 years living how he is now - provided he stays there. He shouldn't be too concerned provided he stays for the full 3 years. Just a thought.
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What would you do in this situation? Maybe ask for him to pay the note if he wants to stay, the maintenance and real estate taxes and lower the interest rate? I think that will be a stretch as the combined value of the maintenance/taxes + monthly payment is more than what I could get renting the loft on the open market.
That's an option too, aim to try to make your note payments as cheap as possible. Don't be put off what open market rent necessarily is, what you are dealing with is an agreement between you and current individual. The open market rent is a factor should payments begin and you have it rented - ie you'd have to make the difference.
1: You are not sure that you want to move in and may rent it out hoping to cover rent payments. If the owner wanted to stay another 3 years, and you did not plan on moving in for 3 years, It can be an advantage to keep the status quo If:
The property is increasing in value at a fairly good rate. You are building equity, with out the risk of vacancy, or an unknown renter that may damage the property and cost you a bunch of money. Lets say your property is going up 5% per year, and you have made a 20% down payment, you are getting a 25% per year return on your investment. Remember your return on increase in value is judged against your cash investment not the value of the property. That is a lot better than the bank's pay today. If it is going up faster than that it can be much higher.
It sounds like what you have is a purchase contract that will not close till he moves out. Was the contract recorded at the county court house to protect yourself. If not do it today. If it is not recorded he can go down and borrow a bunch of money on the property, sell it to someone else the same way he has you, and do many other things. By your recording the contract there is legal notice, that can keep him from causing you problems in the future.
1. With two years of verifiable income, even self employed, and good credit, you should be able to get a regular mortgage.
2. You've basically given him the down payment and lost the investment power of this. That means for every dollar you've given him, you've lost about $0.17 in revenue. Unless the property has appreciated this much, you've lost money. That's before even taking into account the extra taxes you've paid by not having the mortgage interest write off.
3. You have no idea what the property is worth.
Go get yourself a regular mortgage, define a date and buy the place, or see if you can scrap the deal altogether.
I purchased a loft in December 2012. I put down a deposit equal to 20% of the purchase price. The seller is holding the note. The note is supposed to start this December at a rate of 6% per year. It is a mortgage amortized over 15 years with a balloon payment after 10. Under the terms of the agreement, the seller has been allowed to continue living in the loft only paying the real estate taxes and maintenance. The plus side of this for me was that I would not be accountable to pay the note until the seller moved out in December 2014. At this point, the seller is interested in staying longer and I am deciding what I should do. I don't know if I even got a good deal to start with. I know that the interest rate was not good--6%. Any ideas what you would do in this situation and what I should negotiate with the seller if he would like to stay past December? Thank you.
"I know that the interest rate was not good--6%."
How do you know...your friends told you?
6% for PRIVATE money is a good rate. You can't compare private money to Fannie Mae & Freddie Mac rates.
He would have had to have held the note for the mortgage as it is a commercial unit. Nobody would have been able to get a mortgage for this commercial unit. It is much harder than for a residential property. Or he could have waited for an all cash buyer..So I do think that 6% was high for the time and I have excellent credit as well. Just can't get a mortgage because I do not receive a salary. I am going to ask him to bring the interest rate down..
Basically I have spoken with seller who is living in loft I own, and we are going to renegotiate the terms of the note. I can bring the rate down to 4.25% and have a 7 year mortgage with no balloon. Or we can keep things the way they are, the seller continues to live in the loft paying just maintenance and real estate taxes. I could then start to set money aside so that when the note does eventually start, it will be reduced and I will have less of a principle and therefore interest to pay. I could have a clause that states I pay the note at a later date at 4.25% as well. I have a lot of flexibility in my negotiation here...What do you think is the best thing to do? Basically it is a matter of whether I should charge rent or start the note etc...Eventually I will have to start the note....
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