Family death, house for sale, under-valued.

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Makaveli
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Family death, house for sale, under-valued.

Post by Makaveli » Sun Jan 14, 2018 7:49 pm

After living a long and good life my cousins grandparents have passed. Their daughter inherited the house and has informed my parents that her family would prefer to sell quickly in order to return to their normal routine. The house is located 2 blocks from where our family grew up so we are all familiar with location and school districts. My father has a contractor to review & provide quotes. Roofing needs to be re-done ($15k). Basement likely as well - varying from structural to a few support beams ($5k-$40k, 2nd contractor opinion in route). Other upgrades as we see fit. We have a family friend that is a realtor and knows the area well. She is providing potential re-sale values soon.

$230k appraised and we have been given the impression that they are willing to entertain an $100-125k cash offer.

I touched base with my parents to let them know that I am interested - if needed. My parents are unable to fund this themselves nor do they want to work through a bank. My uncle is more than capable and mentioned that he may be willing to be a silent partner. None of us have done this before but it appears to be a great opportunity. I'm fully aware of the mantra of avoiding business deals with family. Please focus on the questions below:

With $50k to invest (house down payment that I am not using anytime soon):

Opt to structure as an 8-10% loan
Opt to be a proportional partner, share in results (positive or negative)
Being debt-free + high credit score, replace uncle's role as primary financier via bank note

With never dabbling in real estate - need some quick feedback here.

Thanks all,
Maka

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dm200
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Re: Family death, house for sale, under-valued.

Post by dm200 » Sun Jan 14, 2018 7:54 pm

Makaveli wrote:
Sun Jan 14, 2018 7:49 pm
After living a long and good life my cousins grandparents have passed. Their daughter inherited the house and has informed my parents that her family would prefer to sell quickly in order to return to their normal routine. The house is located 2 blocks from where our family grew up so we are all familiar with location and school districts. My father has a contractor to review & provide quotes. Roofing needs to be re-done ($15k). Basement likely as well - varying from structural to a few support beams ($5k-$40k, 2nd contractor opinion in route). Other upgrades as we see fit. We have a family friend that is a realtor and knows the area well. She is providing potential re-sale values soon.

$230k appraised and we have been given the impression that they are willing to entertain an $100-125k cash offer.

I touched base with my parents to let them know that I am interested - if needed. My parents are unable to fund this themselves nor do they want to work through a bank. My uncle is more than capable and mentioned that he may be willing to be a silent partner. None of us have done this before but it appears to be a great opportunity. I'm fully aware of the mantra of avoiding business deals with family. Please focus on the questions below:

With $50k to invest (house down payment that I am not using anytime soon):

Opt to structure as an 8-10% loan
Opt to be a proportional partner, share in results (positive or negative)
Being debt-free + high credit score, replace uncle's role as primary financier via bank note

With never dabbling in real estate - need some quick feedback here.

Thanks all,
Maka
Is the "appraised value" assuming the repairs are made?

Are you interested s a residence or investment?

For lots of reasons, it could be a "minefield" to make a significant amount of money on this OR have that perception.

If it is for your residence, why not just get a mortgage from a regular lender. Keep it "clean"

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Sun Jan 14, 2018 8:01 pm

dm200 wrote:
Sun Jan 14, 2018 7:54 pm
Makaveli wrote:
Sun Jan 14, 2018 7:49 pm
After living a long and good life my cousins grandparents have passed. Their daughter inherited the house and has informed my parents that her family would prefer to sell quickly in order to return to their normal routine. The house is located 2 blocks from where our family grew up so we are all familiar with location and school districts. My father has a contractor to review & provide quotes. Roofing needs to be re-done ($15k). Basement likely as well - varying from structural to a few support beams ($5k-$40k, 2nd contractor opinion in route). Other upgrades as we see fit. We have a family friend that is a realtor and knows the area well. She is providing potential re-sale values soon.

$230k appraised and we have been given the impression that they are willing to entertain an $100-125k cash offer.

I touched base with my parents to let them know that I am interested - if needed. My parents are unable to fund this themselves nor do they want to work through a bank. My uncle is more than capable and mentioned that he may be willing to be a silent partner. None of us have done this before but it appears to be a great opportunity. I'm fully aware of the mantra of avoiding business deals with family. Please focus on the questions below:

With $50k to invest (house down payment that I am not using anytime soon):

Opt to structure as an 8-10% loan
Opt to be a proportional partner, share in results (positive or negative)
Being debt-free + high credit score, replace uncle's role as primary financier via bank note

With never dabbling in real estate - need some quick feedback here.

Thanks all,
Maka
Is the "appraised value" assuming the repairs are made?

Are you interested s a residence or investment?

For lots of reasons, it could be a "minefield" to make a significant amount of money on this OR have that perception.

If it is for your residence, why not just get a mortgage from a regular lender. Keep it "clean"
We would be looking at this as a short-term flip as I live out of state and my parents currently rent (20 minutes away from the house). Not sure if appraised value meant with or without repairs - information is coming in waves. Will report back once I know.

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Watty
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Re: Family death, house for sale, under-valued.

Post by Watty » Sun Jan 14, 2018 10:32 pm

Makaveli wrote:
Sun Jan 14, 2018 8:01 pm
We have a family friend that is a realtor and knows the area well. She is providing potential re-sale values soon.
Makaveli wrote:
Sun Jan 14, 2018 7:49 pm
With never dabbling in real estate - need some quick feedback here.
The family friend can likely easily find people that have experience in repairing and flipping houses.

The only fair way for your to buy it would be to pay more than any other flipper would, which would mean that you would have to pay too much for the house, especially since you don't have an ongoing relationships with contractors so the repairs would likely cost you a lot more than a flipper.

It is was a house that you wanted to buy, fix up, and then live in there might be a way for it to make sense especially if you could do a lot of the work yourself. There are likely construction loans that you could use to do this.
Makaveli wrote:
Sun Jan 14, 2018 7:49 pm
Basement likely as well - varying from structural to a few support beams ($5k-$40k, 2nd contractor opinion in route).
Contractors have a lot incentive to tell you that there is more worked needed than is really the case. Not only could they get more work when you hire them to fix it, but they don't want to be sued if there is a problem and less work is done. Hire a structural engineer if you want to find out what really needs to be done.

PFInterest
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Re: Family death, house for sale, under-valued.

Post by PFInterest » Sun Jan 14, 2018 10:44 pm

We're you already planning on doing the real estate thing? Otherwise would pass.

z91
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Re: Family death, house for sale, under-valued.

Post by z91 » Mon Jan 15, 2018 12:58 am

This deal is too high cost to involve family. If/when you sell for profit, they will wonder when they will get their cut for helping you out (no matter how clear you make it).

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Raymond
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Re: Family death, house for sale, under-valued.

Post by Raymond » Mon Jan 15, 2018 1:30 am

It's up to you, but I personally would not buy this specific property due to all the work needed; the potential for strife between extended family members is just a bonus.

But then I'm a chicken that way :P
"Ritter, Tod und Teufel"

Longdog
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Re: Family death, house for sale, under-valued.

Post by Longdog » Mon Jan 15, 2018 5:09 am

Sounds like a really contrived way to acquire a piece of real estate by an inexperienced flipper. I believe there’s quite a bit of risk that you are not aware of, beyond financial issues, including a good chance of strained family relationships. I’d pass on this “opportunity.”

Good luck whatever you decide.
Steve

vested1
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Re: Family death, house for sale, under-valued.

Post by vested1 » Mon Jan 15, 2018 7:23 am

I wouldn't touch this with a ten foot pole. Bad feelings will linger.

Anecdote: A close friend bought a house from a woman who was going through bankruptcy. The woman was the fiance of my friend's nephew. My friend bought the house for about 50k under market value and fixed it up. During the deal my friend asked if he could keep the refrigerator. The woman asked "Oh, you want my refrigerator too?" My friend still lives there, over 20 years later. The woman, long married to the nephew still refers to the home as "My house". Comments like, "Oh, I see you've remodeled my kitchen" and such still occur.

Imagine her reaction if my friend had flipped the house for a nice profit, immediately or soon after buying it and doing a few minor repairs. There's a reason for the warnings that family and business don't mix well.

pennywise
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Re: Family death, house for sale, under-valued.

Post by pennywise » Mon Jan 15, 2018 8:01 am

So to recap:

-House previously owned by elderly people; has been evaluated by professionals as needing extensive repair work including structural upgrades; full scope and actual cost of which is still unknown

-House currently owned by relatives seeking quick sale with no additional complications

-OP lives out of state

-OP has never engaged in remodeling and repairing house for profitable sale AKA flipping

What could possibly go wrong?! :oops:

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Mon Jan 15, 2018 9:52 pm

Watty wrote:
Sun Jan 14, 2018 10:32 pm
Contractors have a lot incentive to tell you that there is more worked needed than is really the case. Not only could they get more work when you hire them to fix it, but they don't want to be sued if there is a problem and less work is done. Hire a structural engineer if you want to find out what really needs to be done.
Good point on structural engineer, likely a better understanding of what exactly needs to be done. In regards to contractors taking an edge or not being able to compete with local flippers - my parents raised us in the nearby house for 20+ years so he has a relationship with someone he trusts & is fair. I'm looking for a little more guidance as a silent investor since my father will lead the charge on the ground.

At what ROR do normal short-term flippers seek?
If you were going to do a P2P loan, at what rate would you consider?
Etc.
Last edited by Makaveli on Mon Jan 15, 2018 9:57 pm, edited 1 time in total.

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Mon Jan 15, 2018 9:55 pm

PFInterest wrote:
Sun Jan 14, 2018 10:44 pm
We're you already planning on doing the real estate thing? Otherwise would pass.
Put your business cap on. When an opportunity presents itself one should at least fully evaluate it.

Grt2bOutdoors
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Re: Family death, house for sale, under-valued.

Post by Grt2bOutdoors » Mon Jan 15, 2018 10:17 pm

Makaveli wrote:
Mon Jan 15, 2018 9:55 pm
PFInterest wrote:
Sun Jan 14, 2018 10:44 pm
We're you already planning on doing the real estate thing? Otherwise would pass.
Put your business cap on. When an opportunity presents itself one should at least fully evaluate it.
Does that include using the services of an anonymous internet forum who may or may not know what they are talking about to reach a thorough and accurate decision? :wink:
With zero expertise in real estate you are now considering putting down serious capital in the hopes of a quick and painless score?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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celia
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Re: Family death, house for sale, under-valued.

Post by celia » Mon Jan 15, 2018 10:29 pm

I wouldn't invest with a silent partner. What would happen if he should die soon after and his heirs want their share of what he had owned?

Go with a bank, instead, if you insist on doing this.

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Mon Jan 15, 2018 10:42 pm

Grt2bOutdoors wrote:
Mon Jan 15, 2018 10:17 pm
Makaveli wrote:
Mon Jan 15, 2018 9:55 pm
PFInterest wrote:
Sun Jan 14, 2018 10:44 pm
We're you already planning on doing the real estate thing? Otherwise would pass.
Put your business cap on. When an opportunity presents itself one should at least fully evaluate it.
Does that include using the services of an anonymous internet forum who may or may not know what they are talking about to reach a thorough and accurate decision? :wink:
With zero expertise in real estate you are now considering putting down serious capital in the hopes of a quick and painless score?
Haha bogleheads are one source. Literature another. Friends/colleagues. And a cousin who flips full time. Give me more credit than that sir outdoors :)

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Mon Jan 15, 2018 10:50 pm

celia wrote:
Mon Jan 15, 2018 10:29 pm
I wouldn't invest with a silent partner. What would happen if he should die soon after and his heirs want their share of what he had owned?

Go with a bank, instead, if you insist on doing this.
Received a quote for $100k loan @ 5%. Brother in law works at a bank and says he could probably get me 3 - 3.5%. Much lower than I expected for a non primary or secondary house.

Grt2bOutdoors
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Re: Family death, house for sale, under-valued.

Post by Grt2bOutdoors » Mon Jan 15, 2018 11:04 pm

Makaveli wrote:
Mon Jan 15, 2018 10:50 pm
celia wrote:
Mon Jan 15, 2018 10:29 pm
I wouldn't invest with a silent partner. What would happen if he should die soon after and his heirs want their share of what he had owned?

Go with a bank, instead, if you insist on doing this.
Received a quote for $100k loan @ 5%. Brother in law works at a bank and says he could probably get me 3 - 3.5%. Much lower than I expected for a non primary or secondary house.
Doubt that! Get it in writing, until then 5% should be your benchmark on cost.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Makaveli
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Re: Family death, house for sale, under-valued.

Post by Makaveli » Mon Jan 15, 2018 11:12 pm

Grt2bOutdoors wrote:
Mon Jan 15, 2018 11:04 pm
Makaveli wrote:
Mon Jan 15, 2018 10:50 pm
celia wrote:
Mon Jan 15, 2018 10:29 pm
I wouldn't invest with a silent partner. What would happen if he should die soon after and his heirs want their share of what he had owned?

Go with a bank, instead, if you insist on doing this.
Received a quote for $100k loan @ 5%. Brother in law works at a bank and says he could probably get me 3 - 3.5%. Much lower than I expected for a non primary or secondary house.
Doubt that! Get it in writing, until then 5% should be your benchmark on cost.
He did mention 5% first.

Then...

"You could potentially claim a second home then deed it to an LLC post-closing and receive more traditional rates of 3 - 3.5%, a little trickier but I could walk you through it".

Lafder
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Re: Family death, house for sale, under-valued.

Post by Lafder » Tue Jan 16, 2018 11:14 pm

If the home is "appraised by a realtor" for 230k in the current condition, why would the cousin sell for more than 100k less than they can get selling to a stranger??

Even if a purchase is made with a loan, at closing or shortly thereafter, the seller can have cash in their hands. A cash sale can be faster and not subject to appraisal. But once the deal closes, the seller gets the funds regardless if from a loan or cash. A few more days is worth 100k to most people.

Is the cousin so wealthy they can just give up on the 100k for a quick sale? Even 10k under market value could result in a fast sale.

Is the cousin the only heir?

The whole situation seems suspicious. Does the cousin mean they will owner finance the rest for 125 k cash down?

lafder

ramsfan
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Re: Family death, house for sale, under-valued.

Post by ramsfan » Wed Jan 17, 2018 8:39 am

A good friend of mine has four siblings. All five of the children worked for their father's business. As their father aged, he wanted to retire and sell the business to his five children at a very fair price. Three of the children accepted the offer, two declined. Thus, three children owned the business. The other two moved on to other jobs and such.

The three children who bought the business have now run the business for 15+ years. They ended up doing an acquisition (which required more investment by them). The first 10 years, the business was steady, but due to the acquisition and doing a good job running the business, it has really taken off. They are making very good money, and the business is worth quite a bit more than their original investment.

Well, guess what, the two siblings who declined to buy in to the business when given the chance, who did not work in the business the last 15 years, and who did not risk further capital are really upset and want their cut of "Dad's business". It is a really bad situation that has turned family against each other, which has impacted cousins, grandchildren, etc...

It makes no logical sense, but family does strange things to people.

In my opinion, you would be foolish to get anywhere near this deal, for numerous reasons.

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