I need help deciding what to do with my next property.
So picture me this:
A 4 bedroom, 2 bath house in a desirable Redding, California neighborhood. Just down the street from a new popular shopping outlet. 1,900 Square feet at least. It's owned by my father and he only owes $78,000 principle on the mortgage, paying about $900 per month.
Its ARV would be around $330,000.
What's the problem then? Everything is wrong with this property. Nobody has lived in it for the last 7 years and has kind of been a hoarder-esque storage shed for my father.
Rotting subflooring (water damage) in the bathrooms and kitchen
AC and Heater both don't work
Tons of junk sitting in rooms
Busted windows and door frames from squatters breaking in
Everything is original to the 1970's when it was built
Rodent and termites, and likely a number of other issues plague this home
An unknown tax lien amount from a divorce
My father said he would sell me this house, and would be willing to work with me in any way so we both benefit from this. This house was my home for the first 17 years of my life and I personally want to see it thrive. I want to own it and have it rented out.
Should I pay contractors to get the home move-in ready and split the profits 50/50 with my father after it has been rented out?
Should I Subject To and take over his mortgage, and pay him out for his equity later on?
Should I pay for the repairs that will allow it to qualify for a conventional mortgage, then buy it from him outright?
There are so many ways I can go about this which makes it that much harder to decide on my plan for it! I would be able to borrow up to $75,000 from a family member and have $15,000 accessible funds right now. I don't plan on buying this house until late 2022. Does anyone have ideas for what can I do to make this work for both me and my father? What would you do?
Family deals are usually the worst deals that are wrapped in shiny wrapping paper. I obviously don't know the situation, but it seems like your dad wants to find a win-win, but that there are going to be a TON of skeletons in that house, including liens. If the ARV was $1m and you could get it for cheap, it would be interesting to do with a money partner, but I think you are signing up for an overhaul when you should just be looking for something different, without the history and emotional attachment that might make you make a bad decision on a bad propertyl.
If you decide to move forward, make sure the contract is VERY detailed, so there is nothing that needs to be left to your own determination. You will want to defer to the agreement for any and all matters that you possibly can. I imagine your relationships with your father is far more important than the property, and this one sounds like there may be some unpleasant surprises as you dig in. I'm not saying it's not worth it, but I would certainly protect what matters most. Good luck!
Sounds like your father doesn’t need to be cashed out, but does he want the higher return (partner with you to spilt equity) or simpler route of letting you take over payments (subject to)? Sub to are great and since you know the seller…seems very reasonable this could work.
You’ll still need the family money to rehab the place. Once you’ve got it fixed, rented, and stabilized, then go get long term financing. You can cash your dad out then and you’ll have your rental
I agree with the others here: get a real contract, go through escrow, do it all correctly and professionally. Then you have the best odds to make it a win-win for everyone.
HI Bridget, OUAT I had an SDIRA and loaned some money to a flipper. Skip to the end and I wound up owning a floor to ceiling storage unit masquerading as a SFR. Since I didn't have the emotional/family tie, I feel qualified to give you this piece of advice. RUN. If you must help, do the legwork to find your father a reputable outfit that grooves on taking this type of property and making it shine. Be prepared to be shocked by the low, low price that rehabber will offer him to buy the gem. They will have a lot of outlay on their plate to get the house back in fighting shape. Since it's 70's vintage, there may be MANY other capex issues not mentioned in your narrative. I was fortunate in that some wonderful folks here in Texas took pity on me. I am happily severed from my "Learning Experience" and it is going to be ready to go on the market in a couple of months. Again, if you can, take your Dad, and your "Family Home" out of the picture and do an objective analysis.
All the best to you and keep on looking!
What options are you thinking about