Family friends inherited teardown in Santa Monica - what to do?

5 Replies

Hello all,

First post to the great BP forum! I'm a commercial brokerage agent in LA, but happen to have a family friend who inherited an old house (definitely a tear-down) on a 7,500sf lot in Santa Monica, CA. Nearby new-construction is selling for anywhere between $4-7MM. The lot in question was appraised at $3MM and there is $100K left on mortgage.

The family is split on what they want to do with the property; some members want to sell the lot, others see this as an investment opportunity for a nice rental property. I've come to BP to ask for some advice on what best practice would dictate here: from my point of view, this is a golden opportunity for development, but residential is not my field and I'm not versed in what it would take to utilize a construction/rehab loan for this type of situation.

Would be interested and appreciative to hear any advice on this, especially the pros/cons of using this as a development opportunity.

Thanks!

Cash out the ones that don't want to make the investment... It'd probably still make sense and be a discount if enough people wanted it. You could always structure it in a way that worked maybe owner finance ?

For a inheritance property where family members are split on what to do with it, I would recommend simply selling it. The past of least resistance. Development comes with a lot of ups and downs and requires commitment, buy-in, and a common vision to be successful. If they endeavor to develop without being on the same page, that is how potentially damaging lasting family conflict can form. Some things just aren’t worth it. Cash in the chips and those who want to develop, go develop, those that want to park their money in the bank, go park it.

Cash it out.  Buy somewhere else that is cheaper to get better return on the money invested.  

I would also be hesitant investing with family unless a few where silent partners that gave no opinion on how to run the rental.  

@Will Johnson Being in construction, I’d be biased. I’d go tear down, build and sell. I wouldn’t hold anything that high value. Say You spend 1-1.5M on the hard construction side, that will at least double. So that’s 3M land plus 2-3M add value, 5-6M selling. I am not familiar with loans but I believe the 2.9M equity on the land will not be hard to apply for a 1.5M construction loan. I’d say regional banks.

Do they have deep enough pockets to do the build. If so then those that want to rebuild should be buying out those that do not .

I would advise them to sell now before the bills start rolling in.

This is not a project for starry eyed amateurs with dollar signs blinding their vision.

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