Is there any action to take in this situation?

Question

Hello BP,

My Grandma mentioned to me yesterday that she is thinking about selling her home within the year. After talking with her, I know her home is worth less than she owes plus repairs. What would be an option for her? I initially wanted to wholesale it, however I do not see anyway to get the home bought for the remaining mortgage payments, plus repairs, and a wholesale fee.

ARV: 90k

Repairs: 15k

Mortgage balance: 70k (current)

Home built in 1977. 3/2/2 1700 sq. ft.

Thank you!

Bill Gulley · Answer

Exactly what do you mean by saying you want to wholesale her house? Do you know what wholesaling is? Where a wholesaler puts a house under contract at a lower price, then charges a real buyer to assume that contract for a fee, then allowing that buyer to purchase at that lower contract price......

and you want to do that to your grandmother?

J _ _ _ _ C _ _ _ _ _ !

Instead of screwing your grandmother not allowing her to get top dollar for her home with you staying out of the deal, or help her without holding your purse open, why don't you agree to buy it from her at market value?!

By asking if you can wholesale it says you want to pass a contract for a fee, if your intentions are something else, you can say so as you really wouldn't be wholesaling if you are simply assisting her (which, IMO, is where your duty should be).

You said she had no equity, but worth 90 minus 15 is 75 and her mortgage is 70, that's 5 k in equity, settlement costs will eat that but she has equity.

How did you get your rehab costs, what is really needed, I could do a modest kitchen rehab, change out all the flooring, interior paint, and do some outside work for less than 15K.

Buy it from here at 75K, give her or owe her 5K. Use a Trust, being your grandmother you won't have any due on sale issue with her mortgage, you are the Trustee and she is the beneficiary.

If she is an older grandmother type, there are other issues to consider about her estate regardless of it being tiny or very large, what is her health like, will she need medical assistance in the near future (3 to 7 years) where is she moving to, must she have a lump some or can she use a small income from the property, will her selling effect any benefit program she may be qualified for????

If she is older and has any other possible issues, the best way for you to help is get her to an attorney to do some planning a course of action.

What's the rental market, any fix and flipper buying at 75K, or, go retail with a buyer on a sub-to. :)

Caressa T. · Answer

Good points @Scott Miller !

I would never make Grandma the landlord. She may start growing greys! :) Thanks for the input!

Scott Miller · Answer

I'd recommend that you ask her if she would allow you to take over the payments and then you become the landlord.  Perhaps offer to share some portion of the net rental amount above the payment and strike an arrangement with her to split the proceeds when you sell at some point in the future when the market recovers - it will, it always does.  That assumes that you can make a projected positive cash flow leasing it out.  But don't make Grandma a landlord, you be the one to do it.  :)

Caressa T. · Answer

@Colleen F. Yes, I am leaning into rental, but I know for sure she does not want that overhead. I would take it over for her.

Thank you for your response. My intentions are to guide her and find the best route to take and prepare her for the next phase.

Caressa T. · Answer

@Bill G. Thanks for your suggestions!

I want to clarify that I would never 'screw' my grandmother. I initially thought wholesaling before I knew her situation. So yes, my intentions are to assist her.

Yes, you are right about the equity. I will have another GC come for an estimate. She had her own come out some time last year. She does need new A/C unit, insulation and possibly new windows and some structural work, plus cosmetic repairs.

I will talk to her about renting and she how she feels. It is doable, as there are homes on her street being rented with similar specs. This was my thought after looking at the numbers. I've listened to the podcast and read a couple articles, however I would definitely allow a more experienced Investor perform a sub2.

She is full of spunk and has no obligation to slow down, so I suspect nothing less in 7 years. I will check into any benefit programs and a course of action, just in case.

Thanks for your suggestions. I am going to work!

Colleen F. · Answer

My read on this is that you wanted to put the deal together for her  without the additional real estate commission of about 4500 but with a fee to yourself for putting the deal together.  If that is your intent I would go with just time and expenses to help her out selling the place.  That isn't really wholesaling. Document any arrangement you come to because it is best to be transparent. I am sure there are other relatives.

Better still  evaluate the rental potential. Although she might not have the stamina/desire to be a landlord she may do better with a sale to someone like you and that person doing a rental depending on market rents. Run the numbers.

She needs to evaluate how this will impact her and where she will go. I advise you discourage her from selling until she has thought that through. The best thing you can do right now is to be there for her and help her by sharing what you know.

I don't poke my head into my friends and relatives finances but I have a friend who recently asked me to help.  I was amazed at what she did not know. You can be a great help to your grandmother here and what goes around comes around.

Caressa T. · Answer

@Shawn M. I thought about a rental, but yes she would not receive any cash during the transaction. That was another concern. She wanted a bit of cash in her pocket.

Is there any action to take in this situation?

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