Attempting to buy my Grandparents home

Buying & Selling Real Estate
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Attempting to buy my Grandparents home

Bryan Tomko
Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes

Hi everyone. Long time lurker here. 1st time investor .My situation is the following. I am trying to purchase my Grandparent's home. 3 bedroom/1.5 bath 1/4 acre lot, 1 car garage, driveway . built 1955 Easton, Pa (West Easton, fairly nice area)

Grandfather passed away in February, since then my grandmother has been in a home. The home needs clean up and some cosmetics but the house is solid. 

My Father and his siblings have had offers from a flipper 1st time 75K then came back with 90k with 5k down and the balance at sale of property after flip. 

Realtor said they could sell for 130k with some small fixes.

I took a friend who is a realtor/investor in the area who rents 5 other homes within 3 blocks through the house and he thinks i could rent for 1200/1300 per month 

I've offered them 100K seller financed 4.5 % interest Amortized over 30 yrs with a 1 yr balloon (plan on taking out a bank loan to payoff. Using calculator i am estimating cash flow to be at around 450.00/mo and after bank loan to be around 250.00/mo

What can i do to convince them to accept this offer?

If my grandmother passes within that year what happens to the seller financing?( I assume I would pay the estate?)

I have an appt with a local real estate attorney monday. Just looking for imput

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  • Ryan Oldenhage
    Rental Property Investor · Allentown, PA · Member since 2013 · 38 posts · 18 votes
    10y

    Sorry to hear of your grandfathers passing, never an easy time.  It sounds like a pretty fair offer and there is the added benefit of keeping it in the family allowing it to be an asset for you.  I guess the importance of that relies on your relationships with your father and siblings.  At the end of the day, they would potentially have to pay for and do the small fixes their realtor recommends (or also pay someone to do them if they don't want to), pay real estate commissions and potentially have the property sit on the market.  We're towards the end of the "buying" season right now, so there is the possibility of the property sitting through the winter which means more utilities and more taxes paid for a property no one is living in.  I would also look up recent comparable sales to see what similar homes have actually sold for.  It's tough to tell if the agent actually looked at comps or just gave a quick opinion.  That can make a big difference.

    I would refer to your attorney regarding the situation if your grandmother passing, but I agree with you, I would assume the loan would transfer to her estate.  But again, I'm not an attorney and there are a few variables involved.

    Best of luck!

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  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    10y

    @Bryan Tomko

    If they can get $130K in the open market, even with some costs of repairs, they would be likely netting in the $115K range. You're $15K below that and they have to wait a year for your money.

    Family or not, that's not really a convincing deal. 

    Why can you not get a bank loan now? 

    Why not offer them $115K with much higher interest rate that's really attractive. After all it's only for one year. 

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  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    10y

    Currently i do not have 20/25% down plus the funds needed for repairs. I do have cash but was planning on using for repairs to get the appraisal up for the loan. 

    They are currently paying close to 700.00/mo in homeowners ins due to the house being vacant. 

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  • Matt A.
    Investor · St Augustine, FL · Member since 2016 · 136 posts · 126 votes
    10y

    Bryan - you might consider a joint venture? Are you looking to flip this or buy/hold the property?

    Ive done deals both ways (and actually recently flipped a condo in a very similar situation). THe last time a realtor said they could "probably" get X sum for a property I asked the seller to inquire if the realtor would buy it for that... the story changes real quick (meaning Ive been 'working' on one in Whitehall - its a 1950's 3br that some realtor claims they can get $225 for. caught in an estate currently and its been vacant for 6+ months with zero interest or showings at that number. Ive offered cash - significantly less, but the place needs $50k in updates to even get close to that ARV.... then you have the risk of carrying it... or you have to lease it).

    Guess what Im saying is whats your exit strategy? If your holding it I personally would be leary of 1200 rent on a 130k property... CoC would seem to be low for me, then again if you can 100% finance it it might pass the sniff test (you have to run a full analysis on it first). Can you convert it to two units? I've got a conversion in Easton - one a 2br that Im getting 1170 for, the 3br upstairs is going on the market for 1200 in a week... I had an inherited tenant in that and HUD was only paying $825 for it. A conversion can dramatically increase your cashflow.

    Bryan, sounds like you have several things to consider. Im more than happy to chat off-line if you have interest. Good luck!

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  • Mark Gallagher
    Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes
    10y

    @Bryan Tomko

    If you can't buy it outright with a loan and need the seller to finance, you're going to have to come up in price and make the deal very appealing for them to take your owner-financed deal. Other than $700/month (which is absolutely ridiculous and you should help them find a correct insurance premium) they don't really have much urgency to sell it would seem. 

    I'd be happy to give you the no-BS realtor price if you want. Send me a message with photos or we can meet there. 

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  • JJ ConwayPro Member
    Financial Advisor · Stephenville, TX · Member since 2016 · 163 posts · 85 votes
    10y
    Originally posted by @Ryan Oldenhage:

    benefit of keeping it in the family allowing

    they would potentially have to pay for and do the small fixes their realtor recommends

    pay real estate commissions

    potentially have the property sit on the market.  We're towards the end of the "buying" season right now, so there is the possibility of the property sitting through the winter which means more utilities and more taxes paid for a property no one is living in.  

    look up recent comparable sales to see what similar homes have actually sold for.  It's tough to tell if the agent actually looked at comps or just gave a quick opinion.  

     I've broken up Ryan's post with bullet points I would use as an argument - that plus the $700/mo of insurance you said they're paying.  As a financial planner one thing I've often seen about heirs is that they're always trying to maximize the money they get from a relative's assets so for a Realtor to tell them $130K and you to come in at $100K isn't initially palatable.  You might need to show them how the property is going to sit there all winter empty (because winter is approaching, because maybe you can show the realtor used too high an estimate, etc) and actually cost them $XK in holding costs.  Present it as a win-win and you'll have a better chance.

    Another point, and I hope this isn't too callous, is that since you don't seem to have an emotional attachment to your grandfather's house (you're not writing about fond memories of him or how he wanted to keep it in the family but, rather your post reads to me like this is a great target of opportunity), perhaps let it go and find another property where the seller is more motivated to sell.  You can always come back with your lowball offer in a few months when they realize you are right.  Big concern if I were in your shoes is that my family gets offended pretty easy so I wouldn't press too hard if they feel like I'm trying to cheat them out of their inheritance. May not be your family dynamic, just throwing that out there.

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  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    10y

    Thanks all for your input. @jjconway I do in fact have an emotional attachment to the house, My Grandparents and I were and are very close. My grandfather built the house himself in 1955 and I would love to keep it in the family.  but I also need to be sure that my numbers will work! I have already told my family in my offer that I would not be offended in any way if they decided to put on the open market. They also don't seem to be offended either by my offer. I have asked them though to consider all the holding costs and realtor commission that they will incur. The house is frankly a mess. It became very hard for them to keep up with cleaning in the last few years. Outside landscaping is all over grown.  @Markgallagher  I will probably offer 115k if they think it was too low. My calculations show I could do and still be ok i think

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  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    10y
    Ok Bryan Tomko,I am going to give you the best advice I can to help you win this deal without overspending for it.First things first,you need to establish the exact condition of the property,the approximate after repair value,and the true current value of the property.You do this by having professional contractors do a full inspection of the property and estimate every possible repair and upgrades you need to get the property into full ARV condition.This is a 60 year old property in what I imagine is a harsh winter environment.Snow,ice,possible rodent and insect infestations,can and will deteriorate the property over time.I am going to assume a few things now.The roof probably hasn't been replaced in a long time,if ever,it will need replacing.The wiring probably needs repairs and/or replacement.The plumbing needs a inspection with a camera through every pipe to determine damage and replacement if needed.Especially the sewer pipes and main water lines bringing water to and sewage from the home to the city pipes.They are exposed more to the elements and can break over time.I'm guessing the kitchen and bathrooms have never been upgraded and replaced,they will need that completely.New drywall and repainting inside and out.All the costs of doing that work need to be put into your offer by deducting them from the after repair value which you will establish by getting comps from recently sold properties in that area.Once you have all that,you will now be able to sit down with your family and discuss this like a business transaction.No sentimental garbage,just business.You can hug it out with them when the contract is signed.You can use the fact that they are losing 700 per month in insurance as a reason to accept this deal immediately.Now make no mistake,they are going to be upset that the house isn't worth what they hoped it was at this moment.Don't argue with them!!!! Let them vent their frustrations without interruption.One of them or all of them will storm out in protest.Don't follow them out,let them stew and calm down on their own.It may take a few days or even a couple of weeks and another insurance payment for them to realize you are offering them the best chance to get this property of their backs.You need to make a good deal,not let emotions get you into a potentially money losing situation and destroy your family ties.Believe me when I tell you that.
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  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y

    Update. Closing scheduled for 12/7!

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  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Bryan Tomko    Glad to hear it.  I hope it all works out well.

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  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y
    0Reply
  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y
    0Reply
  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y
    0Reply
  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y

    So here are my numbers if anyone is curious

    purchase price 100K

    Rehab costs were about 12K

    House is worth about 160

    Currently rented for 1300/mo

    Tenants pay everything except taxes

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Your rent is low based on the value of the property, should be at about $1500. Equity is unknown, based on your numbers, is likely pulling down your cash flow. You should be pulling out any equity you have to increase your return on investment. 

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  • Bryan Tomko
    OP
    Realtor · Nazareth, PA · Member since 2014 · 46 posts · 17 votes
    9y

    Comps in the area all say around 1300. But they are paying water, sewer , garbage which most landlords pay around hear. I am currently shopping a refi with hopeful cash out

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