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Can installment sales provide lifetime income?

July 22, 2011

Question: Bob, I have been reading your columns since 1990 and have enjoyed 99 percent of them. I greatly enjoyed your article several months ago about real estate installment sales. Am I correct in understanding installment sales can provide lifetime income? What if I sell my free and clear house, carry back the first mortgage for the buyer, but in a few years he decides to sell? What can I do to prevent this buyer from getting a new mortgage which will pay off my installment sale mortgage?

- B.M.

Answer: B, you are very astute. The biggest worry most elderly installment sale home buyers have is the buyer, or a future buyer, will pay off the installment sale mortgage. This deprives you of the excellent retirement income you are counting upon.

When I receive notice one of my borrowers plans to pay off my mortgage, If I don't want to be paid off, I immediately contact the borrower to find out the situation. Usually, I can reduce the interest rate or talk the borrower out of paying off my installment sale mortgage. I'm sure you can do the same!

Question: Bob, I work in a maintenance job, earning good money with good benefits. A duplex was just put on the market and it is overpriced and we have a little bit of time before we go on vacation, but my wife and I can't seem to save much for a home down payment.

My best friend, who I've know since we were on our high school football team, and his wife have a similar problem buying a home but his difficulty is his income as a commissioned computer salesman varies wildly. It's always feast or famine for him. He often has to borrow money from me to put food on the table, but he always pays me back. Neither of our wives work, as we want them to stay home with our small children.

Our idea is to buy a two-family duplex together where we would each occupy one-half of the property.

As we both have one small child, we think it would good for them to have a nearby playmate. What do you think of this idea?

- Tom B.

Answer: I hope this is OK and also the answer.

Buying a two-family with your best friends sounds like a wonderful way to end that excellent friendship. All it would take is a month or two when your friend is unable to pay his share of the mortgage or property taxes. You will quickly resent having to pay your friend's share of the mortgage payment and hoping he will repay you.

Perhaps you and your friend are the exception to the rule, but most property partnerships I've seen eventually split in disagreement. I learned my lesson early in my first real estate purchase. My partner wanted to milk the run-down property, whereas I wanted to fix it up. Fortunately I had the cash to buy him out so I could upgrade it.

My suggestion is to resist the temptation to buy a two-family duplex with your friend and keep saving toward a down payment. Many mortgage lenders offer 90 percent and even 95 percent mortgages. With your steady income, you should have no problem getting reproved for a mortgage. Don't let your friends income problem bog you down toward reaching your goal of home ownership. As always, consult a real estate attorney


Have a real estate question? Write, call, fax or e-mail:

Bob Jeffries, Realtor,

Century 21 Birchwood Realty, Inc.

4040 Del Prado Blvd., Cape Coral, FL

239-549-5724 Office

239-542-7760 Fax



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