Hi there, I'm an aspiring investor looking for opinions on a potentially great opportunity that's right in front of me.
Several years ago I inherited a 50% stake in a SFH in a small town (population ~10,000) in SE Minnesota. The ownership is shared with a relative who is no longer interested in owning the house and I'm considering buying their half at a discount based on the repairs that are needed. The house is paid for and in good condition would be around 95-100k in value. From researching online, it looks like rents for a 3br house in the area are 800-850/month. Insurance is about 70/month, taxes are about 1200/year.
The risk factors:
- It's not in good condition. I'm comfortable taking on the window replacement and kitchen + bath remodels, but the foundation needs to be replaced. Three quotes came in between 10k - 20k. I have the funds to cover the repairs, but the magnitude of the foundation repair gives me pause.
- Family drama - current tenant is a cousin who's stopped paying a steeply discounted rent and did not sign a lease when the co-owner (her dad) had her move in. I'm consulting with a lawyer, but it is still an interpersonal headache and makes timing tight. Foundation repair would need to begin well before winter (assuming I can schedule someone), so I'd need her out by 8/31 at the latest which she will not like at all.
- I live in NYC, and while I have family in this town and have spent a lot of time there, I don't have first-hand knowledge of the market nor do I desire to spend much time in this town. I would rely on a local property manager.
The upside is obviously $500 - $600 income per month free and clear, depending on PM costs. I have 75k - 100k free to invest in this property or a duplex or two in Missoula, MT, a town where I spend more free time and have more of a connection to.
Thoughts? Advice? Thank you in advance.
IMO (I am a certified expert in my own opinion). Go with what you know and plot your money in a duplex or two in Missoula, MT.
What's going on in SE Minnesota sounds like a whole lot of mess for a whole lot of nothing. I see this issue with your tenant/cousin getting ugly real quick. Can't tell you how many people I talk to say they regretted ever renting out to a family member.
Besides I think you answered your own question when you said you "don't have first-hand knowledge of the market nor do I desire to spend much time in this town." for SE Minnesota but for Missoula, MT you "spend more free time and have more of a connection to."
The ease and comfort ability you will get with Missoula, MT far outweighs the cash flow potential of SE Minnesota.
If anything, I would offer to sell the whole property to my tenant/cousin so the headache will be hers now. You have a great amount of cash on hand to buy multiple properties in MT than sink it into a potential money pit in Minnesota.
I would agree with @Brian Adzadi on this one. Sounds like the Minnesota house is a mess and has the potential to be cash eating machine. I am a contractor here in Missoula, and I would be sceptical of replacement foundation quotes coming in less than $20,000.00 for a house. Does that price include disconnection and reconnection of gas, water, sewer? Lifting the house. Demo of old foundation. Removal of debris. I would say such a large remodel with the kitchen and bath stuff from a distance is probably something I wouldn't want to take on as a first investment. I would say sell it as is, take the money and invest in a location you would like to visit and a spend time at (Missoula).