Buying 3 props from siblings

Rehabbing, Fix and Flip, Rental Properties
1

Hi, all

I would love to have some input on a REI op I have.

I have opportunity to buy 3 rental properties from my siblings but I’m unsure of the price I should pay. I want to be fair but don’t want to overpay. Market value of homes $160k (+/-) - we’ve got crazy estimates for the properties from very low to very high. Homes are SFR, in a south GA (fairly depressed market). We had one of the properties on the market for 6 months earlier this year - listed at $79k, dropped to $60k over a couple of months and still not a single bit of interest. We had listed with realtor, not FSBO.

What is a good purchase price for me and still fair to my siblings as this not a “make a killing” deal?

Things I’ve considered -

  • Cost of realtor commission if we put on market
  • No guarantee of sell within any time frame
  • Bonus for them - they get guaranteed purchase of all 3 properties without doing any work or waiting.
  • Risk - all mine, to keep rented, may or may not sell in future for what I pay now
  • Bonus for me - I’ve managed the properties for the past 4 years so I know they are in good shape.

TIA for your replies.

Lomah

2

Do not know about the rest of the guys but my investment with siblings or relatives has always turned out to be "NOT MY BEST INVESTMENT.’

If they rise in price they are irritated because you got the increase.

If they decline further and you wind up losing…you will ponder why did I get onto this in the first place.

Yes I know they are relatives and you want the best fot them.

However: do what is best for YOU FIRST.

I have always found my BEST investments DO NOT involve EMOTION…just $$$$ flow.

3

I go with Bill’s advice.

Here’s what I did in a similar situation.

I negotiated a first right of refusal in the sale price of each property. It had to be marketed by a real estate agent, and it had to have a legitimate buyer. What ever sale price was finally accepted by the other parties, I had right to buy at that price.

The issue of course, is that the agent is required to inform potential buyers that a competing party has first right of refusal. That naturally reduces interest, since no third party buyer can hope to nail down any bargains, with that noise going on in the background. (insert evil laugh here)

As it turned out, the in-laws became impatient, and made me offers I couldn’t refuse. (insert another evil laugh here)

Another alternative is to sell the houses without any strings, and 1031 exchange your proceeds into another property.

Another alternative is to make a 90-day, standing, cash-out offer to your in-laws, and let them start spending the money in their heads, and wait for them to say yes. This isn’t a negotiation. This is an offer. Two different things.

Now, they might come back and say, “Sure, we’ll give YOU the amount you quoted us, right now.” Turn about is fair play. Just saying. Of course, you don’t have to say “yes” to that either. Your offer doesn’t have to be fair, or equal. It’s just an offer they can say “yes” or “no” to, and that’s that.

Another alternative is to go to each in-law and negotiate private buy outs. Offer each relative $10K now for his interest in the properties, with a promise not to have to wait and wait, and negotiate further and further, and show how it could be torturous and time-consuming to try to get more.

Assuming you could buy everybody out for a total of $30,000, you get a steal deal, and they get cash to blow on booze, babes, and their unfortunate coke habits.

It’s win/win.

FWIW

4

In order to know the market price, you have to find 3 properties in the same (or comparable neighboring) area that sold in the last 3 or 4 months (no more than six months).

You know that $60K is not market price because it didn’t sell.

Ultimately, your broker should have provided realistic comps. If the broker isn’t doing a good job, you should find a new one.

Go to the most active broker in the area and ask them this question, “If you want to sell a property in one week, what would be the best price to list it at?” Ask this of three different brokers. The average price should be the price you could use with your siblings. You would expect that “one week” price to be slightly below market so don’t deduct any commission cost.

5

Buying a house is either a good deal or it is not. Who it comes from is not relevant at all. If you buy the houses and your relative doesn’t feel like you kind of took a little advantage of them you probably didn’t get a good deal.

6

Dont do it. Best case scenario isn’t even all that great. Just sell these and buy different properties with no emotional attachment.