I have an opprtunity to buy my first income property and could really use some advice on what I should do. (It's a bit of a complicated situation, but i'll try to explain it as simply as I can.) I have sister who owns a property in Galveston, TX. one block away from the beach. (Her next door neighbor has been renting out his house as a vacation home for about 10 years now and has been doing well.) Anyway, My sister's property consists of 1 big house in the front, and a duplex in the back. She's been living in the bottom apartment, and renting out the top one. She doesn't have the money to fix the front house,so what we're thinking about doing is for me to buy the whole property, and with the profit she makes, she will then use the money to upgrade and fix the house and upgrade both apartments in order to use them for income. She is in danger of losing the property, and I am trying to help her and also turn it into a money making property. The bank has already approved me to buy. Some of my questions are:
1. Is this a smart thing to do?
2. Since she is pretty much investing right back into her property, how does work when money starts coming in?
Any advice would be appreciated!
What a mess. Why would she invest her money into a property she doesn't own? She's going to think of herself as the owner even after she sells it to you. And, if she's investing her money into the property, she does have some validity to that claim. Your second question is the tough one. No easy answer.
IMHO if you want to do this, do it simply. You buy it from her at a price she likes. If she wants to stay on, its as a tenant and she pays rent. All the fixup is your responsibility. A clean break would be better, I think. You buy and she moves somewhere else.
Keep in mind that while you say "the profit she makes" that the cash she receives when she sells may or may not be profit. Its very possible to walk away from closing with a big pile of money and still suffer a loss on the deal.
No matter what, this has a real possibility of causing family troubles from now on. If you turn this around and make a nice profit after buying it from her, it may be she will feel some of that profit is hers. Better I think for her to sell this to a buyer on the MLS and you buy something else.
So if I understand correctly you will buy the home which comes with a second back unit from your sister and then she would make the repairs on the place that she no longer owns? It sounds like your trying to help your sister but you could be going down a slippery slope by mixing business with family. If you dont follow it this way you could end up ruining your relationship with your sister, this is why mixing the two can be a potential issue.
1. If you buy the place it should be yours and your sister should not be involved with it in any way unless you rent to her. You will need to make the repairs. Dont let her spend the profit money from the purchase on your place as she is not in any ownership position.
2. When money starts coming in its your money not hers since you own the home.
I was afraid that was going to be the answer, but I can't say that I disagree. Family and business usually don't mix is something I've always heard. I would hate to see her lose the property and someone else take advantage of the opportunity, but I guess I might just have to.
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