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I have an older unmarried friend with no immediate heirs, age 61. He bought a water front lot 35-years ago for $10,000 and put a mobile home on it. At the height of the real estate bubble a nearby simliar lot sold for $410,000. Current tax value on just the lot is $120,000 and distressed properties are currently selling for tax value or less. He has been disabled for fifteen years and is house poor. The home needs a new HVAC system and other repairs that a 35-year old mobile home in a coastal environment would need. He has already taken out a $25,000 equity line to buy a new vehicle, which has tapped out his monthly disability payments leaving little income for home repairs. He has approached me about buying his place.
I'm interested but not as an outright purchase at fair value. He'd like to stay in the property and I already have two nearby properties that I'm maintaining. My interest is as a long-term investment that would benefit him until his death and me after his death.
My thought is to buy outright just the lot and give him a lease-back right for his mobile home until his death. We are friends and knowing his financial management style, I'm worried that it would be difficult to get him to pay his rent in a proper manner should a buy the property outright and then rent it back to him at a fair market value. He is currently carrying no homeowners insurance on the mobile home due to cost in a hurricane prone environment.
My thought is to pay him a reduced price for the lot and lease it back to him on a long-term agreement for fourteen years at $1 annually. I'd require him to carry homeowners insurance on the mobile home that would remain his. He'd have to pay off the home equity line. There is an outside 12X16 permanent foundation shop that I'd agree to maintain. I'd pay the property tax on the lot and shop.
What is the current fair value of the $120,000 lot if you consider my money is worth 4% and I will not receive ownership value for 14-years?
Is it the present value of $120,000 at 4% annually in 14-years- about $70,000?
Is this a fair way to view this transaction? He'd net about $40K to $50K out of the deal after paying off the loan and replacing his HVAC, not have to move and have use of the property for fourteen years or until his death, which ever came first.
Is there a more appropriate way to value such a deal that is fair to all?
I'm interested but not as an outright purchase at fair value. He'd like to stay in the property and I already have two nearby properties that I'm maintaining. My interest is as a long-term investment that would benefit him until his death and me after his death.
My thought is to buy outright just the lot and give him a lease-back right for his mobile home until his death. We are friends and knowing his financial management style, I'm worried that it would be difficult to get him to pay his rent in a proper manner should a buy the property outright and then rent it back to him at a fair market value. He is currently carrying no homeowners insurance on the mobile home due to cost in a hurricane prone environment.
My thought is to pay him a reduced price for the lot and lease it back to him on a long-term agreement for fourteen years at $1 annually. I'd require him to carry homeowners insurance on the mobile home that would remain his. He'd have to pay off the home equity line. There is an outside 12X16 permanent foundation shop that I'd agree to maintain. I'd pay the property tax on the lot and shop.
What is the current fair value of the $120,000 lot if you consider my money is worth 4% and I will not receive ownership value for 14-years?
Is it the present value of $120,000 at 4% annually in 14-years- about $70,000?
Is this a fair way to view this transaction? He'd net about $40K to $50K out of the deal after paying off the loan and replacing his HVAC, not have to move and have use of the property for fourteen years or until his death, which ever came first.
Is there a more appropriate way to value such a deal that is fair to all?