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would you enter into a RE arrangement with your boss?

Posted by girlndocs (My Page) on
Fri, Mar 12, 10 at 17:57

My husband's boss has brought up the idea of helping us to get into a house of our own. He can easily afford to pay cash outright (probably on a cosmetic fixer) and do a lease-to-own for us.

He wants to charge us the same rent we pay now. I'm not sure yet what percentage of that would be credited to our down. In any case it means he'll probably have to hold the note himself when the lease is up and we buy the house, because I don't think lenders will accept rent paid as a down payment unless he's charged us more than market rent.

We would insist on contracts with all the i's dotted and t's crossed to protect everyone involved. We would engage our own RE agent to look over the contract. We would choose the HI, too. Since he's talking fixer houses, we've discussed exactly what kinds of repairs we would be willing to take on, financially and energy-wise, and would have that specified in the contract.

It may be that in exchange for this we would do something like manage another property he would buy nearby and rent out, or do minor repair work on another fixer he buys to sell. We don't have any experience managing rentals or repairing houses to resell, so that's something we need to investigate and discuss.

The boss lives in another country (he's an American citizen and we would be buying a house in the US) so there would be very little dealing directly with him -- I understand the possibility to feel as if he were intruding on our home life as well as running my husband's work life, but I don't think that would be an issue.

Right now we live in a rental house that's too small for us, with incompetent property management and a cheap owner, and it's slowly sucking our souls out. We're subject to the inherent risks of renting -- we rent month-to-month and in our state that means our rental can be terminated for any reason or no reason with only 20 days notice, and even leases can simply not be renewed. Our credit isn't good enough for a loan, but the bad credit is old and we make rent on time every month. We can pay the monthly rent and still have a financial cushion. We've rented this house for 8 years, so we're stable and reliable. Because of our credit, though, we'd have trouble getting another rental.

I'm a cynical person at heart and my inclination is to look at the worst thing that could happen here. I'm having trouble finding anything that couldn't already happen with the house we're renting, or another rental. Does anyone with more experience than me have any insights to share?


Follow-Up Postings:

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RE: would you enter into a RE arrangement with your boss?

first reaction:

nooooooooooooooooooooooooooooooooooooooo

second reaction:

you need to talk to an attorney, & *listen* to what he/she says.


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RE: would you enter into a RE arrangement with your boss?

Why would you have a RE agent act as your legal advisor? I'd get someone who actually graduated from law school to provide legal advice.


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RE: would you enter into a RE arrangement with your boss?

Oh, sorry, I was distracted while I was typing and I meant a RE LAWYER to look over the contract. Uh, that would be our own RE lawyer, not the same one who represents the boss.

Sylviatexas: It would be really helpful if you could explain why you have that "nooooooo" response.


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RE: would you enter into a RE arrangement with your boss?

IMO, if you have to ask, you already know the answer.

That said, off the top of my head here are a few scenarios:

DH gets a much better job offer, and takes it. Boss is unhappy...however, he is still in your life..owning your house, holding your mortgage. NOT a pleasant situation.

Or...DH is fired by Boss...or laid off...but owes his home to the Boss who just dumped him. Again...NOT a pleasant situation.

Boss and DH have a big disagreement over something..anything.

I can go on...but the point is that generally you don't want to mix business with pleasure if that can be avoided.

And...even the best HI in the world can't tell you what is going on behind walls..or estimate cost of repair.

Fixer uppers invariably cost a lot more to "fix-up" than most anticipate...even those who are experienced in such. Both you and DH are novices...you can easily get in over your heads...and that in itself can cause problems between you and the Boss...and, who gets to decide the quality level of the renovation?

Last but not least, lawyers are expensive..especially if you need an agreement drawn up that covers all contingencies of a unique situation such as this...as it is not your garden variety standard form.

Depending on how much you are budgeted for this, your "protection" can be minimal..or maximum. Chances are if you have the resources to afford the maximum, you would not need to consider this arrangement in the first place.

I do understand why you are considering this deal...but I think you need to VERY carefully weigh the pros and cons...and the possible impact on DH's livlihood..and then decide.


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RE: would you enter into a RE arrangement with your boss?

off the top of my head here are a few scenarios:

DH gets a much better job offer, and takes it. Boss is unhappy...however, he is still in your life..owning your house, holding your mortgage. NOT a pleasant situation.

But I don't have to like the holder of my mortgage, do I? I don't like the property management skunks we rent from now. And Boss has the advantage of being very, very far away, permanently. Is there something I'm missing here? What could he do to us?

Or...DH is fired by Boss...or laid off...but owes his home to the Boss who just dumped him. Again...NOT a pleasant situation

Ditto. Now, DH losing his job in this job market might mean we get evicted/foreclosed on eventually, but that would be a possibility no matter where we lived. Frankly, if we have a home, I'm not in a position to be picky about who we're making payments to.

Boss and DH have a big disagreement over something..anything.
Can't imagine what they would have a "big" disagreement over. This guy is not someone we hang out with outside of work hours. He's not our buddy. He's just a boss, who sometimes does generous things. I totally get how you don't want ever to bring business into a relationship you value like a friendship or family relationship, but this isn't one of those.

Fixer uppers invariably cost a lot more to "fix-up" than most anticipate...even those who are experienced in such. Both you and DH are novices...you can easily get in over your heads...and that in itself can cause problems between you and the Boss...and, who gets to decide the quality level of the renovation?

This is one of the biggest worries I have. My thinking was that we don't agree on anything until we know as much about the house as possible and discuss with Boss exactly what kinds of things would need to be done and who would be responsible financially for them. And we need to lay out on the table so that everyone is on the same page re the quality of the reno. So: true, problem area.

But I also have to consider that even if we eventually buy on our own, what we can afford is likely to be a fixer (and we both want an old house) so the risk is still there. And now that I think about it, my inlaws bought a brand new house about 9 years ago and the stupid thing has been a constant money sink for them since then, so what can you do? Just go into it with your eyes open knowing there might be nasty surprises, right?

Last but not least, lawyers are expensive.

We would use some of our savings to pay for the lawyer (as well as the HI). How expensive are we talking about?

I don't want it to seem like I'm brushing off anyone's input. I promise I'm not. I'm trying to poke holes in this and figure out where it could play out that we'd be in a worse spot than we are now, but so far I'm just not finding any (and that probably has a lot to do with the supreme suckiness of the status quo, which is making risks look a lot better to me then we might otherwise).

Thanks.


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RE: would you enter into a RE arrangement with your boss?

Wouldn't touch it with a 100 foot pole. There are so many scary scenarios that could impact the thing, even small things like local changes in the law that could make a difference to how things are done. What if someone gets sick and dies - who's left holding what (yourself included)? Just not a good idea, but you can still thank him profusely for the offer, of course.


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RE: would you enter into a RE arrangement with your boss?

girlndocs, it sounds like you are so unhappy with your current situation. But you do have some savings. I'd consider building on that and trying to be more patient til you can pay cash for something or your credit score improves. Neither of you have any experience with property management or repair work -- stuff you'd have to do right away. What a stress! You don't need this kind of "help." Be patient and get a house on your own -- there are way too many factors in this deal that could cancel out any benefit you would gain from it. Best of luck to you.


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RE: would you enter into a RE arrangement with your boss?

Responses on this forum generally fall into two categories: the safest-legal-by-the-book approach and the calculated-risks approach. These positions are borne out of a combination of personality and experience. You see it in discussion on letting the buyer move in early or allowing the seller extra days to move out. The most recent one was on whether to give the foreign-born buyers a walk-through before move-in to explain how the house worked.

Based on your responses to the concerns posters have expressed, you seem to have thought this over, set up a good plan, and are comfortable with it. If I were in your shoes and believed the boss was acting in good faith based on other things I have seen him do, I would do it.


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RE: would you enter into a RE arrangement with your boss?

The most important factor here is the agreement on the price in which you will pay to purchase the home. You mention the monthly rent, but make no mention of the purchase price. Maybe the landlord is going to try to get you to pay more than market price for the purchase (because you are caught up with monthly payment).

Secondly, once home price is agreed upon, you then agree to the amt of rent that you pay, and how much of that rent goes toward the eventual purchase of the home. Maybe $300 per month goes toward the purchase. But if you don't buy, you don't get that money back.

Discuss with a real estate/contract law attorney before the landlord goes and buys a home.

My personal opinions is to NOT do this at all, but it appears that you made up your mind and you won't listen to what anyone else says no matter what. I'll post a separate item just below with more info.


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more...

Pasted from Above:

"But I don't have to like the holder of my mortgage, do I? I don't like the property management skunks we rent from now. And Boss has the advantage of being very, very far away, permanently. Is there something I'm missing here? What could he do to us? "

Comments on above:
What can he do? Lots of things. Because he is a landlord, can he change the lease agreement once the prior lease expires? Is is a yearly lease agreement that is able to be altered each year? Maybe he decides you can't have pets with the next lease agreement, even though he knows you have them now. Or maybe the current lease says pets are not allowed, but he was nice before and let you get a dog anyway. Now he suddently decides that you can't have the dog (which is part of your family), and the lease backs him up.

Maybe says that you are trashing the place or altering it too much per prior agreements. And you either pay to fix it back to the way it was, or get evicted. This whole issue of fixing/maintenance/altering will likley be a big issue. It needs to be spelled out in the lease. If you feel you will eventually own it, you might want to start painting and gardening and such. Who pays for it and is it allowed? And will the landlord expect you to pay for all fix up/maintenance. This could get pricey.

(just because he is far away, don't assume you can do what you please. He can hire a property manager in one day and they will then be his eyes/ears/enforcer. )

Or maybe he just decides to sell the place. There probably will be some kind of rule in the original agreement that says he can sell it and you have first right of refusal. If your credit is still bad, you won't be able to get the place at that time. I don't know of any legal agreement that forces a landlord to not be able to sell. If there is a lease in place, the lease simply moves to the new landlord. But beware of end dates on all agreements that are in writing. Once they expire, the rules can be changed, even if verbal promises were different.

This issue of you being a property manager for other rental properies he wants to buy is a big red flag. Also for you to be responsible for fixing up/maintaining the other property plus yours. This is not good for you. It can be time consuming and hard work and take quite a bit money out of your pocket.

What if the owner decides to stop paying the mortgage? The place gets foreclosed and you evicted, even if paying on time and even if you put thousands of dollars in fixing the place up.

IMO, find a lease purchase or owner financing from someone else. They are out there for folks with bad credit, but you will likely need to deal directly with the owner and not a bank for the financing. IMO, renting outright is better than the deal you are going to get into with your boss, even if you have to move to a different rental than what you are in today.

lastly - go to www mrlandlord dot com. In that site, click on the area that has Questions and Answers from landlords. Search the site for prior postings on lease/purchases and such. Real landlords use that site daily. They always say not to rent between co-workers (bosses included) or family or friends or even friends of family. They will explain why. They probably have dozens of examples of what happens if you do it anyway.

Also - work on getting your credit fixed asap. Then you won't have to deal with all this stuff regarding owner financing and can go to a bank and get a loan. How long will it take to get your credit back to normal range? This should be your number one goal.


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RE: would you enter into a RE arrangement with your boss?

This is my third post...but I forgot to add a comment about your credit.

You said don't think you can get another rental(just a straight rental) due to your credit, but mention that you are reliable and stable and have been in your current rental for 8 years.

IMO, an individual landlord(not a property management firm) will look at your rental history and might rent to you IF your reference from your current landlord is good and says you paid on time and have not been a problem tenant. If you explain the credit issues to the landlord , you would be surprised at how many will consider renting to you. However, you do need to have the income/funds to pay the new rent. You will have a harder time finding a rental than folks with good credit - but it is totally doable. This all depends on the extent of your prior credit issues. A repeated history of credit issues and lawsuits and criminal issues will make most landlords say no. But one bankruptcy or foreclosure due to health issues or a job loss or divorce awhile back might be overlooked if everthing else checks out well.


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RE: would you enter into a RE arrangement with your boss?

I wouldn't do this. To me, there's something off about a boss getting it into his head that this is something to do with an employee. It sounds like you don't think it matters, but there's a power relationship in this situation that could complicate things a lot, even with contracts.

I don't understand why you're so certain that you would be unable to get a rental that you like better than your current one. You say that you have old bad credit that would prevent you from getting another rental. You also say that you've been paying on time at your current place for the last 8 years and have a financial cushion. Are you assuming that you'd be unable to get another rental, or have you tried? If you've been paying all of your bills on time for the last 8 years, that would show up in your credit report--you might be a better candidate now than you think.


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RE: would you enter into a RE arrangement with your boss?

All of the "he coulds" that Sweet Tea mentions as reasons not do this lease-purchase with the boss could happen with a non-boss lease-to-purchase. And given the tenuous state of her current rental situation, month-to-month, she could run into some of them as a renter, such as changing the dog policy, selling the building.

If the boss wants her to be maintaining other units, it sounds like a sweat-equity situation, which explains the boss' motives in a positive light.


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RE: would you enter into a RE arrangement with your boss?

I would talk to an RE lawyer, do research, and just be very careful on this situation. Being a senior citizen, having rentals, dealing with a friend, and hard feelings, I personally would not do it. Pull up your credit report, remember you get at least one a year free from each credit bureau, take that information, plus your other information to your lawyer and he/she may offer other alternatives.
Remember this person may not always be your boss. No matter what you do, get everything in writing, no verbal statments, reviewed by your RE lawyer and good luck.


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RE: would you enter into a RE arrangement with your boss?

sorry so late, just got back to computer;
the reasons for my extremely strong reaction have been listed by others already.

Main thing is relationship between employer & employee.

I my own self would not like to have a business contract interfere with that.

In the event of a disagreement, the boss almost always wins, & you could find yourselves with no home & no job either.

Get other financing if you can.


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RE: would you enter into a RE arrangement with your boss?

What if someone gets sick and dies - who's left holding what (yourself included)?

Hmm, good question. I wonder if we could arrange to have it in writing, who the property goes to if someone gets hit by a truck.

Because he is a landlord, can he change the lease agreement once the prior lease expires? Is is a yearly lease agreement that is able to be altered each year?

I think we would probably look at a single long lease, at least 2 years, with our option to buy at the end of the lease protected.

it appears that you made up your mind and you won't listen to what anyone else says no matter what

No, that isn't true. Just because I don't agree with other people's conclusions doesn't mean I'm not thinking about the points they bring up.

I don't understand why you're so certain that you would be unable to get a rental that you like better than your current one.

Three months of research.

Main thing is relationship between employer & employee.

I my own self would not like to have a business contract interfere with that.

Unless there's a friendship outside of work hours, isn't the relationship between employer & employee exactly a business contract?

In the event of a disagreement, the boss almost always wins, & you could find yourselves with no home & no job either.

People have said this several times but no one has offered a plausible scenario to *how* it would happen that couldn't happen now or in another rental. I mean, if you have one, I'm all ears, I just haven't seen one.

I'm going to call several lenders Monday and see what they accept as a down payment from a rent-to-own situation, because I agree having a third-party lender would be a way safer option. And thanks for the reference to mrlandlord. I'll read there this weekend.


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RE: would you enter into a RE arrangement with your boss?

From a completely different perspective: It sounds to me like the boss really appreciates your husband, and is trying to keep him happy and working for him for a long time. I've seen similar arrangements in other small business situations, and some have worked out, and others have not. When they have not worked out, it has been the employee, not the employer, who was to blame.


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RE: would you enter into a RE arrangement with your boss?

It's not about whether you are friends or not. He is the boss, the one with the power, and if you get into this situation with him he'll have power in both places - kind of like the old company store scenario - you'll be serfs for life with no more freedom at all. It seems most of us here have had experience both with rentals and as owners, and have no personal agenda otherwise, so why are we telling you not to do the deal? Because we know what can go wrong. And believe me, wrong looks a lot worse from the inside looking out than from where you are now, just reacting to the bad rental you're presently in and wanting to jump at the chance of something better, which you can ultimately achieve on your own with no strings attached. You may be impatient, but better to suffer impatience than some of the horrors that could ensue otherwise. You first NEED to get your own credit in good order and THAT will give you the freedom to choose on an equal footing, not from the "beggars can't be choosers" place you're in now.


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RE: would you enter into a RE arrangement with your boss?

If the boss's goal is to help you buy a house, why doesn't he simply loan you the money to purchase the home? He would become the lien holder and could foreclose if you didn't pay. Why the lease to own deal? Or he could purchase the house and sell it to you on a land contract. I don't understand all the other complications to this deal. Sounds to me like he wants to do this so that you and your husband will be beholden to him to manage rental properties and whatever else he can't manage from Australia. I would suggest that he pay you and your husband a fair salary for such duties and simply loan you the money.


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RE: would you enter into a RE arrangement with your boss?

Re-read the above, and a couple of things stood out. You don't have a down payment, and would not likely qualify for a mortgage in the next couple of years. Maybe that means you should continue to rent, rather than enter into the more complicated 'rent to own', and help to fix up and manage another property. If the boss wants to be a landlord, then you might be a very reliable tenant.

OTOH, if you REALLY would like to buy that house, the sweat equity plan could work for you. You would of course, have to agree to the amount of rent that goes toward down payment, and when you could exercise your right to buy. Most importantly, if you would not likely qualify for conventional financing, the boss would have to be obligated to hold your mortgage (with reasonable interest rate and terms).


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RE: would you enter into a RE arrangement with your boss?

Ugh.

Too many eggs in one basket.

Too much power in the hands of one person.

I'm not a fan of "deals". It all sounds very straight-forward at first, you manage some property, he invests, but it can all turn messy quickly.

A fixer-upper that you don't get to select. Really?

What is the boss's experience with being a landlord and with property management? Personally involved landlords with little practical experience are in my experience, horrendously unrealistic.


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RE: would you enter into a RE arrangement with your boss?

As some posters above pointed out, the "what-ifs" could occur with the boss or with another landlord or seller. The problem with doing this with your boss (versus a stranger) is that if something does not work out, one or both of the parties will feel wronged. There will likely be hard feelings, possibly a threat of a lawsuit or actual filing of a lawsuit.

This will likely sever the relationship between the parties. When parties were strangers to begin with - so what. But if you are in a lawsuit with your boss regarding a real estate deal, then this will be a major issue at work. You will both feel wronged, both have hard feelings and both likely will talk about it to other people. Other people might take sides. The employee could likely get fired or laid off, lose out on promotions or raises or given bad work assignments due to the relationship issue with the boss that stemmed from a real estate disagreement.

I have heard about people that rented to cousins and then when the cousins trashed the place and the landlord kept their deposit - the cousins gave a different version of their story to other family members about how they got kicked out and left homeless. The end result was family members choosings sides, based on whose story they heard and believed. Relationships were ruined forever.

This is why you try to do these deals with strangers and not with family, friends or coworkers. Because of possible issues with the real estate deals gone wrong, those friends can quickly become former friends and the relationships with the coworkers and family can be ruined forever.


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RE: would you enter into a RE arrangement with your boss?

From a lenders perspective, you were correct in your original post that the amount that would be applied to a downpayment would be the amount over and above local market rents you would be paying as part of your monthly rent payment.

These scenarios rarely work since the documentation needed to prove the amount above market is not provided, nor is the actual "market" rent easily agreed upon.


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RE: would you enter into a RE arrangement with your boss?

Well, I agree that this all sounds like it may be too complicated to work out adequately for everyone's needs and comfort zone.

I hope Boss simply agrees to lend us the money to buy a house of our choosing as terriks suggests. It seems to me like that would be easiest and safest for everyone and it would be a win-win -- we get a house, he gets to make interest on the loan.

I'm going to have to think very long and hard before I'll be comfortable agreeing to anything else.


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RE: would you enter into a RE arrangement with your boss?

Have you talked to a Realtor or a lender yet?

The best option, it seems to me, would be to buy your own home without boss's involvement at all.

There are low-downpayment programs such as FHA, &, if either one of you is a military veteran, VA.


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