[Darcy Tafoya]

Darcy Tafoya

My 84 year old mother bought a house a few years ago on a Contract for Deed. There is nothing in the records showing her ownership, only the Seller (I’m not surprised). Anyway, at her age, I’d like to be able to lower her monthly payment as she lives mostly off of Social Security ($890/mo). She paid too much for the house (of course) and is paying 8.25% interest. She can qualify for a USDA mortgage at 4.5% and it would lower her payment about $120/month.

Here’s my question, I would like to ask the seller for a discount, she owes $43,500 (house is worth $64,500) and I’d like to see if he’d take $35k to free up his cash flow. Of course, if she gets a USDA mortgage, we have to write it up as a Purchase Contract, he’ll have some closing costs and it will take at least 30 days or so to close. Not sure he’ll take a discount with that option. Or, I find the cash some how and pay him off within 7 to 10 days. I want time to get clear title and a policy. If I pay him off, I’m not sure she can turn around and get a loan as it’s not an “arms length” transaction at that point. Should I try and find a private money lender? Would that be better in the long run? Less fees, PMI, etc.?

I haven’t contacted the Seller of the house yet but need to do something soon. Right now a 30 year USDA payment of $230/mo (P&I) works for my mom. I figure when she passes I’ll sell the house on a CFD/Subject To myself.

Open to suggestions. Thanks for your input everyone.

Btw, Jackie, do you teach Subject To and Trusts in detail in the Premium membership? I need to learn it sooner than later. Thanks!

Darcy Tafoya

[Dee L Graber]

Dee L Graber

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Darcy, sometimes we get surprised by the best possible outcomes. A few years back I had an aunt make it to 102-1/2, and set an all-time record in the family. However, my crystal ball is every bit as cloudy as the next guy’s. Given that, here’s a possibility you’ve probably not considered, that may or may not be practical in your circumstances.

I don’t have any idea how close you live to that house, nor whether it is in a very urban or very rural neighborhood, or whether the house is sufficient large (or has room for enlargements) for this idea or not.

Sometimes, if enough of the stars can be aligned (sometimes with a little nudging), a house can be converted into an assisted living facility, while continuing to provide a comfortable place to live for the existing resident, and provide a nice additional income stream as well. Sometimes if more space is needed, a garage conversion and/or backyard buildings conversion, etc, etc can all be used. Such a facility can sometimes be leased to a qualified assisted living facility (ALF) operator (company or individual), while maintaining the primary resident’s independent status (your Mom). If her health should reach a point where ALF services would be appropriate, she wouldn’t even need to move. If instead, she should ever need to move into a nursing home instead, the income stream from ALF operations could be a big help.

So, how and where to learn about such possibilities? Up until a few years back, CashFlowDepot used to have a relationship with an instructor about the several ways to find or create and profit from ALF operations, but his prices suddenly went through the roof, so that relationship went away. Happily he is not the only fish in the sea.
If you search on YouTube on the Assisted Living Facility phrase, you’ll find some other people teaching the ins and outs of that business. Most likely, some serious search engine diddling will turn up more sources.

Odds are, the deeper you dig into that subject, the more reasons you’ll find on both the pro and the con side for you and your Mom to sort through. Happily, this is not something that might need to be implemented ASAP, and is not something that needs to get in the way of whatever financial puzzle-solving that’s facing you now.

And, here’s a thought. Even if this turns out to be an idea that’s not appropriate for your Mom now, it might be at a later time in her life. But if not then, it still might be a highly useful income generator for you once her hopefully very long and well-lived life is completed — instead of simply selling off the property.

Much to think about and research. Fortunately, there’s no rush to get in your way of the immediate needs. If the house turns out to be suitable for such a use, and you find a qualified ALF operator to run that business and manage the house (even if you later want to trade the house for one better suited to ALF operations), you could literally own and benefit from that business while living even in another country. It can be that much a hands-off income generator.

Best wishes to you and your Mom for the best possible outcomes from your research and joint decisions-making.

–Dee

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[Jackie Lange]

Jackie Lange

HI Darcy

So glad you jumped in to ask questions in the Community Forum.

Instead of your Mom getting the new 502 USDA loan, what about you buying the house from your Mom. Then you could rent to her. The title will be in your name which will make the estate situation easier later.

Under 502 USDA loans, there is income qualifications. So you may not meet the requirements but your Mom likely would! And a USDA loan can be assumed, even by family members. If I remember right, when a loan is assumed by a family member, they may not allow the subsidy.

Here’s some info: https://www.rd.usda.gov/files/3550-1chapter02.pdf

And when the house is sold, there is a recapture of the subsidy but it is very negotiable. I remember when I bought a house subject to a USDA loan. Rehabbed it, then was ready to sell it. The recapture would have eaten up most of my profit. I was able to negotiate an 80% discount on the recapture of the subsidy.

Any time you can buy a house subject to a USDA loan, you’ll get great cash flow!

It’s important to get the Deed to the property in either your Mom’s name or your name asap. Things could get messy with a Contract for Deed when dealing with an estate. With a Contract for Deed, it is normal that the Deed to the property would NOT be in the buyer’s name until the loan is paid off. Make sure your Mom has a will with the property mentioned in the Will.

It never hurts to ask for a discount. if you don’t ask, you don’t get.

Jackie

P.S. Yes, we have a lot of training about buying subject to the mortgage in the Premium Training.

[Darcy Tafoya]

Darcy Tafoya

Dee,

Thank you so much for your ideas about an ALF home. My mom has been remodeling this house the last few years on her own, it’s not HGTV, but it works! But it’s all one level living in about 1000 sf. She’s thinking long term so she can stay in this house as long as possible. I will definitely do some research though, especially if this could be an income producing project and help her later down the road.

Thank you!

Jackie,

You made some very good points about the house and her will, whether she keeps it how it is or changes it, it all matters. She thinks she owns the house but she’s not much more than a renter at the moment.

I had not thought about a USDA being assumable. Not sure why but good to know.

At the moment, after talking with the loan officer we work with in our real estate retail biz, here is what we’re thinking. I’d love some feedback.

1) Call the seller and offer him $35k on the $43500 balance CASH. The house then can be deeded in my Mom’s name. Not sure if he’ll take that much of a discount but we’ll go for what we can.

2) Borrow the money from other family members and write up a Deed of Trust or a Promissory Note. Once she has the house in her name she can then qualify to re-finance the house, with a Conventional loan and pay off the borrowed cash/Deed of Trust and have her own mortgage on the property.

The loan officer is confident her bank can do a loan for her and she can even put the closing costs in the loan and take out a bit more money if she needs to.

Right now I just need to get the cash. Even my dad (her ex-husband) could afford it but he’ll want interest I’m sure. Any private money lenders out there that could float $35-$40k for about 6 weeks, max 60 days?

Thanks!

Darcy Tafoya

[Dee L Graber]

Dee L Graber

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Darcy, there’s another alternative to the ALF concept that I forgot to mention. It’s probably best left until the house is no longer of use for your Mom. And this probably depends on its location as well. That’s to use it as an Airbnb or HomeAway, etc vacation rental. All kinds of properties have been used that way, but some locations might be much more popular than others. And this is much less expensive to learn about and operate. I think that Airbnb has an online course for hosts around $300 or so, but I’m not current on those numbers.

It’s also a much more hands-on business.

Or, as you learn what kinds of properties and locations work best (or at least better) for that business, you may or not decide that trading the property for one better suited to Airbnb type operations might make sense.

So … just in case you run out of possibilities to consider…

Best wishes,

–Dee

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[Darcy Tafoya]

Darcy Tafoya

Dee,

Excellent idea. Not sure this one would work, it’s in a small-ish town. But they do have the State Fair there every year and who knows? People always need a place to stay.

Thanks for thinking “outside the box”!

Darcy