My brother’s father still owns the home that he and my mother bought together. My mother passed away 5 years ago and he’s made one bad mistake after another ever since. The house is in complete disrepair–roof leaks, an addition that’s falling apart, a furnace that is not working, moisture and mold. This house would need a complete and total gutting and then rehab. He currently owes about 70k on the house–he’s current on the mortgage payments. Other houses in the area are going for 175-180k. He’s willing to sell the house to me and let me rehab it. He just wants out from under the mortgage. So here are my burning questions:
Is a total rehab too much for a first deal?
He owes about 5k in taxes on the house. I’m in the process of figuring out if they have placed a lein on it. How will this play into a possible deal?
There may be other creditors who are trying to place a lein on the property. How might this affect the deal?
My other question is how ethical is this? Does anyone forsee any problems surrounding ethics?
And finally, if you have any ideas on my next steps I’d be honored to hear them.
first off doing deals with family is tricky. It is not a great idea, but it can be done.
First and foremost you need an accurate estimate of much it will cost to really fix the place up. If you are not experienced enought to do that find some one who is either thru friends, neighbors etc. Buy them lunch/dinner/12 pack of Bud (whatever it takes) to come over and spend and hour or two. Probably best if your Dad was not around as he might get upset with some the comments (you need to have a free and open discussion with this person during the process). Just based on the sounds of it, you could easily have >$50k in repairs (or more).
I don’t see an ethics problems, but more a question of post-deal chaffed family relationships down the road. Your father may seems happy and relaxed know, but get 2 years down the road and he might be telling your Uncle Wllie over beers how you “ripped him off” cuase you made so much money after selling the fixed up house. This is not to pass judgement on you or your family; just a possible outcome give human nature and family relationships.
Some great questions. Nothing wrong with the ethics. You will want to pay some money to help relocate your brothers dad maybe a grand or two. This will smooth over any rough spots. Have a long conversation that you may make $20K or you may just break even or even lose some money. Sounds like $25K to $30K in rehab may be enough. Get some bids or friendly help as suggested already.
The liens from other creditors will not be a problem if you transfer the deed to yourself or a LLC or some other form of ownership. The taxes will need to be paid if you have to refinance to get the rehab funds. What are the plans on getting the financing?
Thanks for the replies. I think I’m going with hard money to get through the rehab and then refinance. I’m not even looking to make some exorbitant amount of money. I’d much rather see him living in a safe environment. The relocation for him won’t be a problem, he knows he’d be placed somewhere else for 6 months, possibly more, and he’s currently making arrangements.
He’s offered to sell the house to me numerous times. He wants to keep the property in the family, but not have to necessarily be responsible for mortgages, taxes, etc. I’m trying to locate rehab specialists right now to get bids. A gentleman on the same street as my dad has had two houses rehabed so I’m going to contact him for possible referrals.
Thanks for the tip about transferring the deed. I’m in the process of setting up my LLC, but if need be I can transfer the deed to myself.
I’d like to keep the house as a rental because the neighborhood is a good rental area.
My rule, I never do business with anybody I can’t sue. When I consider if I should do any business deal with a person I know, I ask myself what kid of effect on my life would it be if I had to sue them. If it would change my life greatly(like having to change churches, family reunions become difficult, change jobs, weddings and birthday invitations difficult, etc), I don’t go into business with them.
Hello Everyone. The situation is rapidly changing and I need some advice. The house is in worse shape than I thought. The first estimate for repairs came in at 80k. This would include fixing the roof and damaged beams, replacing all the windows, renovating of the kitchen and bathroom, replacing the drywall in the 3 bedrooms, and basically rebuilding the addition from the ground up (repouring of concrete,etc.). I have another contractor coming to look at it tomorrow. So the numbers are as follows
The HML’s Terms= 5 pts. and 12% interest, they use this formula: (purchase price + repairs)/projected sales price
and theyare looking for the LTV to be less than or equal to 75%
Is there any way to make this work? I’d really like to keep the house after it is rehabbed as a rental. But how can I offer less for the house than what is owed on the mortgage? Any help is greatly appreciated!