A friend of mine who lives two doors down approached me, asking for help. He had 35k in equity in his house that he wanted to get out but his credit was so bad that he couldn't get approved for the refinanance. He asked that I buy his house, rent is back to him, and then he'd buy it back(at market value) from me when he could qualify.
I told him he was crazy, that this was an incredibly stupid thing for him to do and that he should bite the bullet until he could qualify. He persisted, saying he needed the money badly and that he had no options because he didn't want to move.
My friend, his name is Eric, persisted. We had the conversation repeatedly over several weeks with this result: I'd tell him I'd do it if he really wanted but that it was a terrible deal for him over the long run. To entice me, Eric offered 10k(or maybe I demanded, can't remember) up front to offset the risk of having a renter in a house I owned. I was hesitant to do this knowing Eric's penchant for losing all his money at the casino and the fact that he was in a cash buisness that could land him in jail at any time. Over my repeated warnings, he continued to want me to do this. Finally I relented.
Unfortunately I had just started my own business and I couldn't qualify. I came up w/ an idea and asked my good friend Ron to go in on it with me. He and I would split the equity 50-50 when we sold the house back to Eric. The deal went through and Ron and I split the intial 10k 50-50. We both netted $3700.00 up front after closing costs.
Meanwhile, because of the higher mortgage,(150k to 185k) the payment, and thus Eric's rent, went up to $1420.00 per month from $1100.00. Our rental agreement was for 2 years; gauranteeing that Ron and I would make at least a little money in appreciation.
6 months go by, Eric was on time with the rent exactly once, complaining every time that he was paying too much and that he wished he lived in a smaller house.(Yes, even though the whole thing was his idea)
Finally, after the 6th month, Eric approaches me and tells me he'd like to move out and asks me if I would consider letting him out of the lease. I talk to Ron and he agrees, only because he has also started his own business and needed some capital. We decide to sell the house.
Well, the housing market has gone wild and the house has appreciated in a mere 6 months time from $187,500 to $329,900. I mentioned this to Eric and we immediately went from being good friends to having him act like a jerk every time I talked to him.
I finally asked Eric WTH his problem is and he tells me that he's upset the house appreciated so much and that he feels he is "morally" entitled to get his 10k back since Ron and I are going to make so much money in so short of a time. There was never any such agreement and Eric is breaking the lease but he thinks getting his 10k back is "only fair".
Poll question: does Eric deserve a dime? If so, how much and why? If not, why?
