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On the other hand, if you go with the
“deal” offered by the “investor” you might get a sale for $300,000
(just to sweeten the pot☺). You would take out a new loan in your
name for 80% of the sale price, if it appraises, in the amount of
$240,000. You would then get the “cash out” of $55,000 (new loan
amount minus the old loan) less the same expenses to give you about
$45,000 in your pocket! The other $60,000 you will not get your
hands on for five years unless the house is resold or, if it goes
into foreclosure, you may lose it all!
You will receive a payment of $500 a month as long as the “buyer”
keeps up with the payments.
This income is fully taxable to you as interest received. The deed
to the house will be recorded in the “buyers” name.
Don’t forget, your name is still on that 80% loan if they have only
taken over the payments and not had the loan transferred to their
name. They don’t want to have the loan in their name because of
credit problems or, if they do, it will show them as carrying too
much debt and they won’t be able to go on to the next FSBO and set
up the same deal.
You also would be in breach of your loan agreement as you would have
obtained your loan as an “owner occupier”, and they, not you, will
be living in the house or renting it out. This also makes it more
difficult for you to obtain an owner occupied loan (lower interest
rate) for your new home.
They will tell you that you are actually getting $330,000 for your
house when you add in the interest you will get for the five years.
What they are banking on is the house appreciating enough to make a
handsome profit, and in the meantime collecting rent which will more
than cover their loan payments. But what happens if their tenants
fail to pay or they have a vacancy for months? They will tell you
that your loan is secured by the property, but what happens if they
don’t make the payments on time or not at all. Your credit is the
one in jeopardy and to save it, if you find out about it, you will
need to start making the payments including any arrears. This can
turn very nasty in a down turn of the real estate market! |
