Investment property - Landlord Forum thread

Investment property by Anonymous (NY) on July 9, 2012 @08:39

My daughter wants to borrow money so that she and her husband can go half and half on an investment property. The owner wants a quick sale and they think it is a good value. But...they want a cash deal. Property is about 400,000 and they would each have to put up 200,000. I am hesitant. That is a lot of money to come up with. If one puts up 200,000 and the other one takes a mortgage for 200,000 would that be a better idea? Or does anyone think that the investment with all that cash is a good idea? It is in a good area.

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Re: Investment property by The Dude (MN) on July 9, 2012 @08:54	[ Reply ]

Who wants a cash deal, the seller? If you're offering 50% down, that highly improves the bank's probability of approving a mortgage for the other 50%. As long as their credit scores aren't below 500, this shouldn't even be an issue. If the property is worth $400,000 and the bank is only mortgaging $200,000 of it? Not much risk there on their part of not being able to get their money back. I'm assuming since this is a landlord board, you mean to rent this place out when you say investment, not just do work on it and re-sell. Research local rents for a similar place. Figure out what the mortgage on the $200,000 would be, likely around $900-$1,000 for a 30 year fixed rate. The sellers will normally want an all cash deal so as not to lose the sale due to the buyers not being able to get financing. They can accept any deal they like, but if you're putting down 50% and offering full value, I'm sure they'll accept.

Re: Investment property by Eloise on July 9, 2012 @08:57	[ Reply ]

I assume you are saying they want to borrow money from YOU?

Re: Investment property by Nicole (PA) on July 9, 2012 @09:59	[ Reply ]

my take on this is she is asking if couple A puts in $200,000 from their savings and couple B gets a mortgage if this is a good idea. couple B cannot mortgage this specific property unless couple A would sign and that would be INCREDIBLY stupid for couple A. a better deal would be each put in $100,000 cash and take out a $200,000 mortgage that both couples are responsible for. the seller seems to not really want a sale if his request for that kind of money is a cash offer. cash flow would have to be tremendous for two couples that don't seem to really know what they're doing to spend that kind of $$$. there are all sorts of legal and tax ramifications on purchasing a property worth this much money with another couple. if they're having their parent ask on a public forum rather than seeking counsel, I'm betting it's not a good deal.

Re: Investment property by Jake on July 9, 2012 @10:02	[ Reply ]

If you have $200,000 that you never care about seeing again, this is a good place for it. I am constantly amazed at the people who have never made a nickel for themselves but have such elaborate schemes to make you rich. If this person is good at making money he does not need yours.

Re: Investment property

Re: Investment property by Micah on July 9, 2012 @10:51	[ Reply ]

Do they have experience in property management? If not then don't loan them the money. It is not an easy business and is not something that a person without financial means should undertake. Co-sign? Maybe. Put up hundreds of thousands of dollars in cash? No way!

Re: InvestmenW property by Anna Mouse on July 9, 2012 @10:53	[ Reply ]

First question is how much is $200000 to you? Is it chump change or a big chunk? If my son came to me at 16 and asked to borrow 2,000 that is a sizable amount. First thing I would ask is where is your business plan? Second thing I would advise is that doing business with four others is a recipe for disaster, likely without a firm business plan. Within the business plan I would make sure all parties agreed on who did what and that way things were decided ahead of time. Also if who didn't do what then what would need to be spelled out. Also expect to lose your money. So only give what you can afford to lose. Keep in mind that when you lose the money and it goes south he will of learned nothing as it is not his loss. Since were talking kids I might say my son just lost a 500 piece of equipment and I made him go without for 6 months. I am preparing to fork out another 500 to replace it now. You can bet that every day more than once there will be the question of where is it. Has he or will he learn anything? Probably not except maybe how to keep track of something. Would I like to spend $500 on a few new out fits? YES! Can I afford it I guess! He is not old enough to earn money yet, really so it is hard to know if Im doing right. I am going to make a loan sheet and make him work for me to earn it back. We will see how that works out.....I suppose I can repo the item if he does not do what and when I ask. This will teach him something, we shall see.

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Re: Investment property by Anonymous on July 9, 2012 @11:04	[ Reply ]

First, with a mortgage, all property owners on the title of the home would have to either be named on the mortgage or sign a release giving permission/release for a mortgage. Some banks will ask the non-mortgage holder to sign a waiver form to give up their rights to claim the house if the mortgage is defaulted before approving the mortgage. It's not unheard of a seller wanting a cash deal. You see this when people are negotiating offers. The seller wants the listed price but the buyer is offering something lower. To sweeten the deal, the buyer may offer it all in cash or the the seller may take the lower price if it's all in cash. Or either party wants to deal to be quick because they need to unload the property fast or get into the property ASAP. The real issue is that you would be giving your daughter an unsecured loan of $200,000. What if she doesn't pay you back? What's in it for you? If she decides she doesn't need to pay you back or cannot because the mortgage become defaulted, or they cannot find decent tenants, or the maintenance of a rental property becomes too much for them, will you be ok with letting all the money go or would you be ok suing and going after your daughter and probably souring that relationship to the brink of being irreparable? People don't think about what could happen if things don't work out because they do not think their family would do something like that. You have to take the daughter part out of the equation. Would you even consider just handing a person from work or from a social group this kind of money if they came to you with this situation?

Re: Investment property by OK-LL on July 9, 2012 @13:29	[ Reply ]

It sounds like your daughter is bringing $200K to the table and her husband is doing the same -- is that right? If so, she may have an even bigger problem in the offing, separate finances within a marriage. If they aren't in this financial endeavor together as a single unit, why are they doing it at all? Separate finances are usually maintained because there is an inequity between the partners income or financial worth. If that isn't the case here, what is their goal in keeping their finances separate in a marriage -- is it to make a breakup easier? If so, you should avoid becoming financially involved in this situation in any way. If you decide to proceed with the loan, you need to deal with it at arms length as you would any major investment you make. You need to determine whether either d/h has the required expertise, experience & skill to handle a rental, and the collateral expenses that will arise. If she is borrowing seed money, it sounds like she may not have an emergency fund to finance repairs and maintenance -- alrget items cannot be carried by the rent monthly. You should prepare this as a mortgage loan and that means everyone on title to the property must sign the mortgage and promissory (or everyone signs the mortgage and your daughter signs the promissory note alone, at the very least). My best advice is to RUN! from this deal. Good luck.

Re: Investment property