I have been trying to figure out a way to save my family's property and maybe even use it as our first investment property. Quick back story, this property is a SFR located in the 11208 area of Brooklyn, NY with an owed amount of approximately $374k between two mortgages. As of the property's current condition it is valued at 507k with R5 zoning on a 2,000 sq ft lot. The property itself is only 1212 sq ft with an unfinished basement which sits 50% above ground level. My fiance and I have been living in this property for the last 5 years paying one mortgage because we had no knowledge of the second mortgage until recently. This second mortgage is of course in arrears and the lender requires a substantial amount for reinstatement of the loan. My family is willing to sell the property to us for what is owed but the property is in need of repairs. New electrical, plumbing, sheetrock, siding and etc. Basically a new face lift as it was built in 1910 and has not had any major updates completed.
Our initial thought was to convert this property into a two family to generate rental income but the cost of renovations in NYC is making this option extremely difficult in regards to qualifying for the financing. An architect has quoted a 200k estimate for renovations to just the inside of the property.
Now we are trying to decide if it makes sense to keep exploring the options of acquisition and conversion to a two family? Should we acquire the property and renovate as a one family? Or if it makes sense to acquire and leave as is for a while? Or does it make sense to just walk away?
Any creative solutions to this issue will be appreciated as we have run into a road block on which route to take.
Would your property qualify for this special program?
@Inemesit C. They are willing to sell it to you for what is owed? If they owe $374K and it is worth just over $500K, I'd go for it. You've been living there for 5 years, so no one knows the condition of the property better than you. Even if you live in it without doing the renos, you're still further ahead than you are now.
You can save up to do the renos down the road or refinance and use the equity in the home to pay for renos.
You got a lot going on here! I think the first thing you absolutely have to do is get a true and total cost of money owed and what your monthly expenses will be. If you can pay that PLUS the costs of renovation then you can talk about staying vs leaving. If you can swing it, then start looking into some debt adjustment plans. Interest rates are low with traditional banks right now and this would probably be the best time for you to restructure the existing debt on the house and possibly take out equity to pay for repairs & renovations. Alternatively, you should look up 203(k) loans which will allow you to purchase the home from your family AND pay for renovations. Again, this will all depend on you reviewing your financial situation.
Finally, part of your zip code is in the East NY revitalization plan. If you're there then that's definitely a plus. Either way, your plan will only work if you decide to live there. I do not think renting out the house will yield the $ to be worth all the hassle and cost. Good luck!
Currently the property does not qualify for the basement program due to the second loan being delinquent. Now that may be another option to explore once we have purchased the property!
Thank you for reminding me about that program !
The true and total cost of money owed is 374k between both loans via payoff statements from both banks. My initial thought was to do a 203k loan and renovate but we wouldn’t qualify for the total loan amount to convert into a two family. That leads me to purchasing and renovating as a one family. I’m not familiar with debt readjustment plans so that is something I can definitely look into. Now to restructure the loan, I’m assuming that it would be restructured in my family’s name since they hold existing mortgage? I looked into the possibility of co-signing to refinance the property but was told it couldn’t be done due to that second loan being delinquent.
The house is located in the East New York revitalization plan which is why I’m trying my hardest to figure out a solution.
@Inemesit C. 🤔what about selling it and get the money
@Frandy Blain that would be the very that options after all others are exhausted
@Inemesit C. whats the location In Brooklyn
@Inemesit C. address of the property
@Inemesit C. The real value of the property is not the house as much as the land. The cost for you to rehab the structure, pay the loan and live in this 1 family is high, if not prohibitive. This is all speculation of course without knowing the property at all. That said, selling it now will leave you with about 100K. If you do not deal with the income from the sale correctly, a large portion of the money will be taxed. AND THEN, you would have to deal with family and how ever much anyone thinks they may be entitled. This part is usually more stressful than dealing with the bank.
Again, without knowing all the information and just going by your post, I think your best bet is to minimize your loan payments (by restructuring the debt), live in the property as-is for a few more years, then sell to a developer who can/will build a small multifamily property. Look to see if you're in an opportunity zone.
@Inemesit C. Get an appraiser to get you the exact value of the house, if it is worth 500k and you are getting it for 370k absolutely go for it!
You can sell it and make 100k profit instantly, and this is the worst case scenario,
If you live in Brooklyn you will not find those kind of deals and you know it, maybe a 10k discount on a 500k property if you are lucky, take it fast fast fast.
@Inemesit C. Buy the house and get it locked down, even if you can’t afford the rehab. Cross that bridge when you get to it. This is a great problem to have.
Find the true value by getting it appraised, if its 500k+ dont sell.
Dont worry about the rehab right now, cross that bridge when you can afford to. I believe due to the deliquency of the 2nd mortgage you may not be eligible for any program opportunities, but I would do the research to confirm.
Just keep it simple...I would forget about the 2 family thoughts.
That's a lot of equity to capture assuming as is value is 500k+ and you make your money on the buy. I would go for it if you can swing it