Want to buy and renovate GMA's house with little money down. How?

7 Replies

My grandmother is putting her home on the market, very desirable neighborhood and a rapidly growing & family friendly city within 1 hour of Minneapolis (Rochester, MN). I've been reading about BRRRR and am thinking that her property might be a perfect place to start, due to many young families looking to rent SFHs in this city.

Some details on the home:

- It hasn't been renovated since the 1970's, but it is relatively good shape.

- It's located next to a great middle school and within 15 minutes of a major hospital where many residents of this city work. 

- Comparable homes go for around 200k (rough rough estimate).

My wife and I have 20k saved up, have very good credit scores and would be first-time home buyers. Our questions are: 

1. What kind of strategies could we take advantage of to buy her home, while utilizing our savings mostly for renovations? I have heard of "under-contract" in this podcast, but don't quite understand how it gives you an advantage compared to conventional loans.

2. Would we be approved for a conventional loan, FHA, or other first-time buyer programs if the house is relatively old and requires updates?

3. Is there anyway to ensure my Grandma and we both get a good value in this deal?

I'm sure I have way more questions, but I think this is a good start. I'm in contact with a great realtor/investor in the area that can potentially help us find similar properties if GMA's doesn't pan out.

Thanks in advance for any input!

Updated about 1 year ago

I realize now that BRRRR depends on getting the property lower than market value and renovating so it is appraised for much higher in a short time frame. I certainly don't want to low ball GMA, so this would likely only happen if we decide to move into the house indefinitely.

So you wouldn't be living in the house? If not, I'm not being a first time home buyer would be an advantage.

Things to consider before buying:

1. lead paint

2. asbestos

3. radon

4. sewer pipes

None of these may be an issue but depending on the locale, they may be. The sewer pipes can be scoped out with a plumber that has a camera to take a look. I'm assuming this is an old house.

Originally posted by @John Teachout :

So you wouldn't be living in the house? If not, I'm not being a first time home buyer would be an advantage.

We currently live in Chicago and are saving up money until Spring. We don't plan on living in the house, but instead updating it and renting it out after a few months. We are considering relocating back to MN and living more frugally in order to put 100% into updating the house, gaining equity for additional financing on our next deal.

*Edit* But we would consider living in it and renovating (maybe this makes more sense) if we could take advantage of 1st time programs. Aren't there some which also give access to home rehab loans?

 

Well, you can ask Grandma if she would carry the note and owner finance the deal for you. Then you do the purchase and sales agreement plus loan docs and security instrument through title and escrow. Maybe she is willing to give an interest rate comparable or less than what you could get at a bank. Maker sure you have Grandma's attorney draft the loan docs and deed of trust (or mortgage if a mortgage state).

You can certainly get a conventional loan on a home that may be outdated but so long as it has a functional and working kitchen and functional heater, and no other major issues like foundation problems, asbestos, lead, etc, then you have a home that can be financed.

Originally posted by @John Teachout :

Things to consider before buying:

1. lead paint

2. asbestos

3. radon

4. sewer pipes

None of these may be an issue but depending on the locale, they may be. The sewer pipes can be scoped out with a plumber that has a camera to take a look. I'm assuming this is an old house.

 Noted, thank you.

Originally posted by @Will Barnard :

Well, you can ask Grandma if she would carry the note and owner finance the deal for you. Then you do the purchase and sales agreement plus loan docs and security instrument through title and escrow. Maybe she is willing to give an interest rate comparable or less than what you could get at a bank. Maker sure you have Grandma's attorney draft the loan docs and deed of trust (or mortgage if a mortgage state).

You can certainly get a conventional loan on a home that may be outdated but so long as it has a functional and working kitchen and functional heater, and no other major issues like foundation problems, asbestos, lead, etc, then you have a home that can be financed.


 I understand. I think it would be best to do a traditional loan so she would get the lump sum right? It was built in 1963 and EMV is 167k. Up from 152k last year and 146k before that. Do I get a home inspector/appraiser to come check it out before I offer to buy a property? Sorry if it's a basic question.

Not sure if the lump sum is better or not for granny. She should check with her CPA on any tax implications on the sale and compare that too an owner financed deal. If it is her primary residence, then she does get a tax benefit of up to $250k of capital gains free or double that if married, if the profit is higher than that, then owner financing is a great way to spread that tax implications over more than 1 year.

Yes you should get an inspection and as for appraisal, depends. If you are getting a conventional or hard money loan, the lender will likely demand one so let them order it.