my uncle and my mom bought an apartment building many years ago at a dirt cheap price of 20 grand. It's now estimated at about 300 grand. My mom wants to buy my uncle out--mainly because he's a slum lord. He's been the landlord of the building. My mom is only working part time and my father doesn't make that much. The house they currently own isn't worth more than 60 g. So my mom wants to see if she can get a loan to buy my uncle out and then use the remaining money to put as a downpayment on a new house. what's the first thing she needs to do. I've already determined she doesn't qualify for a home equity loan because her building has over 4 units -so we've been told she has to apply for a commercial loan.

But Does she have to confer with my uncle to apply for a commercial loan on her interest of the property. they are 50/50 partners. What's the maximum amount she'll be able to get? The apartment building has 6 units and has not been offically appraised but buildings in this area are getting 350,000. What kind of commercial loan is her best option given the fact that her income is low. Also in your view how much should she offer my uncle-purely your opinion.

Thanks for your help.

Faith:

Well what you need to do and what you should do depends on several things.

1 First, you need to find out the way that the property is titled under? Is it under both your mother and your uncle? Or just one of them?

If it just under your mother, then she can legally do with it as she pleases and this includes getting a loan on it. If it is a joint title, then your uncle will have to be part of the process somewhere.

2 Then you need to determine how much your uncle will accept to sell his half of the building.

If for example, your uncle is willing to accept $150,000 for his half of the building, I think that some kind of contract should be drawn between him and your mother for this transaction. You will need to consult an attorney for this as there might be a better way to do it, but this way sounds logical to me. Remember, I am not an attorney.

3 The next step is to approach a lender for a loan. The source of repayment of the loan will be the rental income, your mother’s low personal income will be a secondary source that does not carry much weight. See this page http://www.loanuniverse.com/rental.html for an example of the way that lenders calculate how loans on rental property are repaid. That page will give you an idea of how big of a loan the building can support.

Now on the matter of how much she should offer, from the limited information that you provide, I would think that half of the appraised value would be the right amount. Of course, the amount that he gets is dependent on any loans being outstanding on the property.

Has your mother thought of letting her brother buy her out? I think that offering your uncle the option to sell or buy her out would be the best way to approach this. Being a landlord can be a difficult chore at times.

Hope this helps.