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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 8683
Experience:  30 years of corporate, litigation and international law
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I have purchased a house (conventional financing). My son

Resolved Question:

I have purchased a house (conventional financing).
My son and his wife are renting from me (fair market rent paid monthly).
We have agreed that when they can qualify, they will obtain financing and "purchase" it from us. They have no savings for a downpayment and too high "debt to income ratio" to qualify at this time. We also spent enough to remodel/upgrade/repair the house to a very nice place. My wife is a real estate agent, and did a lot of the painting. My son did a lot of the work, but other than that haven't invested any money of their own in the house (so far). He and wife have agreed to repay us for the remodel/upgrade/repair and all closing costs, so it is essentially a (simple interest) personal loan from us at 5%. The payment for this is "included" in the rent they are paying.
When they purchase it, we want to insure they can pay off all we have put into it. We also want to allow any "equity" (amounts paid monthly above the interest/escrow/etc.) to apply to their purchase, ie: it becomes the new down payment. We're in NC. Q1: What laws apply to their purchase from us? Q2: How do we structure an agreement - as an lease with Option to Buy? Q3: Do I have to set a selling price now? Q4: How do I determine the selling price for the purchase? Any help will be great!
Submitted: 2 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 2 years ago.

bizlaw :

How much above teh interest and cost of your financing are they paying in rent? How much did you put into the house between purchase and remodel? Do you want to sell now at a fixed price or sell later once they obtain the financing?

Customer:

They are paying enough to cover payments on "my" mortgage (which includes principal interest escrow for tax & homeowners insurance and PMI premium). Purchase price was $141000. 10% 14,100 down, closing costs were around $3,000.

Customer:

We also spent $500 on a home warranty, $400 on appraisal and $375 on an inspection. Remodel and repairs have been around $8000. I put all of these funds in.

Customer:

So we are "financing" the additional costs, around $25,000 at 5% for 10+/- years. Payment for that is $250/month.

Customer:

They can't buy it now, but they want a fixed price.

Customer:

At least it is "fixed" in that we don't plan to make it based on market value at the time of sale.

Customer:

Sorry, forgot to say the mortgage payment is $911. They are paying a total of $1160.00 per month in "rent".

bizlaw :

BAsically, they are paying your cost of carrying the house and the financing of the money you have put in. In light of the fact that you are not making any money on your outlay, I suggest that the arrangement be a lease with an option to buy. Let it run for three years before they have to excersie the option. The purchase price would be the price you originally paid plus your investment. What this means is that you will have accrued a small amount in principal reduction. In another three years both their situation should improve and the value of the house should increase. If you fix the excercise price at the price you paid, they will end up with a good deal and you will get a few dollars based on the reduction in the pricnipal amount of the loan.


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This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

Customer:

They want the principal reduction to accrue to their benefit.

Customer:

I get the Tax benefit in the mean time, plus the interest on the "personal" loan.

Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 8683
Experience: 30 years of corporate, litigation and international law
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