Need help with a strategy for my father's property

[Kyle McCane]

My father has a reverse mortgage on his home. I don't know much about them.

The home is in relatively good shape but there is some definite deferred maintenance needed like a kitchen/bathroom remodel, removing the wall paper from 1978, floors/carpets, swimming pool refurbishing, etc.

Property values are good in the neighborhood. It's a pretty desirable place to live in his city.

He is at a point where it's time for him to move out and probably come live with me and my family. I understand that he/we have 1 year from the time he moves out to sell or refinance to pay off the reverse mortgage.

What strategies I should be thinking about:

- Take out a loan and do a complete refurb and refresh of the property to sell?

- Try to sell it "as is"?

- Take out a loan and refurb to make it a rental property?

- other suggestions?

- Partner with someone that knows what they are doing???

Any advise will be really helpful. 

[Jared Garfield]

Kyle,

Great questions, I've coached over 1,000 investors through these types of issues, working for three years with Robert Kiyosaki which was like drinking from a fire hose as people faced these kinds of issues.  Let me see if I can help:

1. Talking to an expert who knows a lot about reverse mortgages is a good start.  Mark Schow is a friend of mine who was the head of his state mortgage association, he did thousands of investment loans for "Rich Dad, Poor Dad" clients and was one of the largest reverse mortgage brokers in the country.  He will give you some free advice and will know the rules.  Inbox me and I'll give you his email and phone number if you would like.
2. Depending upon your father's financial situation, and the equity that is in the home, I don't know if a refinance would be possible?  This might mean you wouldn't have to sell in such a timeframe (although market indicators for California say that the next year is a great time to sell).  This only becomes important if the two of you don't have the ability to come up with the renovation funding.
3. Private/Hard money lenders who might be willing to go into a second position to give you the renovation funds to be able to get the house into top shape would be an option to check into.  While these types of funds may carry high interest rates, it's often not a bad solution if its for short term and you can afford the carrying costs.  I know of one such lender with interest rates in the high 6's for CA borrowers. 
4. Even more desirable, could you get a home equity line of credit on your home, or even a car loan against a paid off car to be able to have funds that could be used?  You could have an attorney draw up a promissory note that your father signs (keeps things from getting difficult if other family members are involved), and then put the money into the renovations with a commitment that you receive a portion of the upside for helping....everyone wins!
5. Look at the comps with a realtor that does flips, see how much value would be gained commiserate with the renovations required. This will tell you whether you would likely want to sell without doing renovation or not.  Removing wallpaper, painting, taking up carpet to reveal hardwood floors in good shape, updating lighting, door knobs, front doors, and landscaping are all good investments that pay back a great deal, and might not cost nearly as much as you think. 
6. Certainly you can shop the house to investors, check Zillow, get two or three realtor opinions, and with the feeding frenzy that exists, someone else may see upside in being able to make a profit for putting in the efforts, and might pay you a retail price for the current condition.  This "Buy High, Sell Higher" philosophy is risky in my opinion, but when inventory is low and capital plentiful, there are people out there ready to take the gamble.  This option doesn't give you the opportunity to learn as an investor, and you are giving someone else the opportunity to make a handsome profit for saving three or four weeks of work and figuring out the capital side of the business.  (If life is really hectic it might be worth it). 
7. Call House Buyers like HomeVestors.com -  They may low ball the heck out of you, give you a really low offer that will almost make you mad, but in the CA market they might come back with something bordering reasonable.  They have great systems, are very good at pitching and convincing people to sell to them, and you can probably learn a lot by watching their approach.  (You might not want to try this approach if you are a soft sale because they will be very good at what they do, and they are a good option for people desperate to sell who want to offload a problem).
8. Partnering with an expert is not a bad idea if they have a proven track record, can sell the property without paying listing commissions (they will need to be licensed) and if they will put the renovation money up and manage it.  You would partner only on the upside potential that is achieved after you receive the value of the property in the current state.  They get their invested capital back and the upside potential is split.  (We are licensed and have capital - so we could talk about options if you like).
9. Holding the property for rental in a market that has had a very strong upward trend for several consecutive years might not make sense.  Many experts feel that California and many other markets in the country are so much higher than where they were before the last crash, that there may only be a year or two of growth before a market correction.  It's likely that your family equity in this home is only going to earn 1-3% so if you elect to go the cash flow route, selling the property and rolling from 1 property into 10-15 properties that earn 15-25% Cash on Cash Returns and up to 5x the income might be the better route.  I've helped friends in CA go from $18,000 per year income to $120,000 income on the same equity, so if income is what you want, consider professional property management on turn key, fully renovated properties.  It's eggs in a lot of baskets instead of one, and provides income while still maintaining equity and tax advantages.
10. Lastly, if your Dad hasn't reached the maximum lifetime exemption, he may be able to sell this home without having any taxation on it if he has lived in it 2 out of the past 5 years.  Get with a good CPA to find out the rules.  Please remember that for many people, if an asset isn't sold before 2 years prior to needing to engage Medicaid/Medicare for nursing homes that assets can be seized to handle these costs.  Hopefully, your Dad is a long ways away from that, but if you do hold onto the home, placing it in a Trust might be a wise thing if declining health could make that possible in 3-10 years?

I hope this helps, and if I can assist further, connect with me and I'm glad to talk and share local resources that might provide solutions, whether it's lenders, realtors or contractors.

Happy Investing.