Hello All. I'm investing about $60,000 in a family member's rental property that is currently not rented because it needs a significant amount of work. The reason it's an investment and not a loan is because I know that they won't be able to pay me back the $60,000 anytime soon, not to mention any interest, no matter how small.
When the property rents it'll cash flow approximately $2,000/month. The home is worth about $450,000 (Southern California) and paid off (inherited). What's a fair amount of the monthly rent to ask for in exchange for the investment?
Thank you all for your help. I look forward to reading all your responses.
Wait a minute!!! The house will be paid off, and worth $450k when done...and only CF $24k/year...and you want to use it as a rental? How much of the $450k will be used up doing the rehab? Assuming it will be less than a third (<$150k), that leaves at least $300k buried in the floorboards of the house...while you're getting a whopping $24k/year. Do you realize it will take you almost 13 years (assuming no added costs or vacancies during that time...(uuuuh, no).
Fix it, FLIP it, take the $300k and invest that as down payments in multiple properties...of which the total CF from these properties should drown the $24k/year of the other property...and you're not losing any equity doing this. You should be gaining more equity.
You should never spend your seed money...just your profit. Use your seed money to infinity, but NEVER spend it.
Fix it, flip it and invest that as down payments in multiple properties...of which the total CF from these properties should drown the $24k/year of the other property...and you're not losing any equity doing this. You should be gaining more equity.
You should never spend your seed money...just your profit. Use your seed money to infinity, but NEVER spend it.
I agree with Joe here because it's inherited property. Most flips have high tax consequences, but if inherited recently, most of those should be minimal.
To do this, I would need a mortgage/deed of trust on the property, family or no. I would ask for a 10%ish return if paid back within a year but escalating if longer. I'd be ok being paid in full at time of sale and not needing payments along the way. Hopefully this $60k isn't something you need for a year or so?
if not family, I may ask for more than 10%. Are all heirs in agreement with what you want the exit plan to be? Are there many of you? Secure you're investment with a mortgage no matter what Good luck!