Father Wants To Sell Me One Of His Houses To Get Me Started In REI
My father has asked me If I wanted to purchase one the family homes.
I'm thinking heavily about it because I would very much so like to get my feet wet. Here are the details:
Appraised at $47,000 (2002)
Mortgage payoff $27,000 payments are current.
Monthly payments = $360
Equity would be around $20,000 maybe more if a current appraisal is done.
The house is currently occupied by a family member that pays $200 bucks and my fathers pays the $160. This family member is in a bind so he's helping her out.
My thinking is to do a sub2 and continue to make the $160 monthly payments until I can get a loan over. Or would a L/O be better for this type of transaction?
....Would I be able to use the equity in the property via my father to make other investments?
Interesting situation. You could possibly do a sub to deal, but I would think it out before making any decisions. Hope some experts help you out and I'm looking forward to hearing what they say. Good Luck
Absolutely...we said that we wouldn't rush into anything without thinking it over throughly. He's really supportive of my endeavors.
I've read many books and I'm totally addicted to this site...thinking about taking some of the online courses on here.
Thanks for the reply mate
You've got family living in the house now? Hmmm...that could be trouble in the future.
You said the family member is in a bind, right? What kind of bind? Is this a temporary bind or a long term bind? If they can't pay I would feel very hesitant to try and sell a home to a family member that can't afford $360.00 a month for a house.
If she is going to be able to afford the payments and eventually buy the house from you, I say take it sub2. You could raise the payments to match what she can afford, but, I wouldn't. I was raised to believe family is family and I don't try and make money off of them. Even if you only made a couple of grand the experiance you'd get from doing this deal would be worth it for future properties.
But what it comes down to is this: You have family and you have business. I don't like to mix the two, that's an atom bomb waiting to go off. Businesswise: Take sub2, boot her out and get someone that can afford it. Familywise: I wouldn't touch it with a ten foot pole. Becareful...this could be a bad deal in sheeps clothing. Everyone knows that pissed off family is worse than any lawsuit you can get...family doesn't go away.
KingMonkey's wisdom of the ages!
Questions to ask first:
1.) Can the property be easily resold?
2.) Is it a Sellers' or Buyers' market? Average resale period? 30 beats 60 days etc. RE agent will give you this information. If Buyers' market who is your competition? Why, for what reason? Location, value? Plan your potential acquisition with this in mind.
3.) How does this compare throughout the city? Be in the average or better for resale time, unless you're planning rehab to stand out, and don't over rehab. Paint, carpet, plant new young shrubs, and repair obvious broken items.
Get comparable sale prices, of course, from recent sales shown in local county tax assessor's office records. Sold prices are there!
Back this up with real estate agent's valuable opinion. Ask--you will be successful. It is really that easy.
Good luck, tytitan. I know you can do it. Use ordinary, which is thorough, diligence as described above. Do not have analysis paralysis.
Making money permits reasonable risk, which you will be carrying. Do clear a profit well, on paper first.
Benevolent family members? Yes, this is highly likely. But due diligence is YOUR benevolence to the situation. Alan[ Edited by fearnsa on Date 02/28/2004 ]
Well, I guess I'll have to give you an investor's point of view on this.
First, why was the appraisal done? Appaisal's don't necessarily mean FMV. Depending on the reason they were done, they could be greatly inflated. Make sure you know the true market value of the home.
Second, you'll be buying a $160/month debt. Not a very good start to investing in my opinion. That's assuming that the amount includes taxes and insurance. If not, you've got more debt. Who's responsible for maintainence and repair, you or the "in a bind" family member? You could be buying a ton of debt.
Third, it's great the your father is trying to help you, but family and business rarely miss well. I know from experience, trust me. I can see a huge problem brewing here. If you buy the property and it goes bad, you'll be upset with your dad. If you buy the property and you try to make money from it (ie remove the "in a bind" family member) then possibly your father, and likely the family member will be less than happy with you.
Frankly I don't see this as anything but problems and big trouble at the moment.
Roger
Quote:
On 2004-02-28 05:09, kingmonkey wrote:
...
You said the family member is in a bind, right? What kind of bind? Is this a temporary bind or a long term bind? If they can't pay I would feel very hesitant to try and sell a home to a family member that can't afford $360.00 a month for a house.
If she is going to be able to afford the payments and eventually buy the house from you, I say take it sub2. You could raise the payments to match what she can afford, but, I wouldn't. I was raised to believe family is family and I don't try and make money off of them. Even if you only made a couple of grand the experiance you'd get from doing this deal would be worth it for future properties.
...
Well, she's the elder of the family and is on a fixed income. So I don't think she'll be able to purchase the house anytime soon.
Thanks for taking the time
[ Edited by tytitan on Date 02/28/2004 ]
Quote:
On 2004-02-28 05:28, fearnsa wrote:
KingMonkey's wisdom of the ages!
Questions to ask first:
1.) Can the property be easily resold?
****My thinking is yes. It's very close to the high school in the county and people continue to move into the neigborhood since I moved in 1997.
2.) Is it a Sellers' or Buyers' market? Average resale period? 30 beats 60 days etc. RE agent will give you this information. If Buyers' market who is your competition? Why, for what reason? Location, value? Plan your potential acquisition with this in mind.
****I need to research that. The county has seen an increase in hispanic population in the area...so I was thinking about trageting hispanic and and other minorities...maybe section 8.
3.) How does this compare throughout the city? Be in the average or better for resale time, unless you're planning rehab to stand out, and don't over rehab. Paint, carpet, plant new young shrubs, and repair obvious broken items.
****The house is in great shape. It was renovated by the city with a grant from the state. Bathroom makeover, exterior make-over, and roofing. I'm sure there are some minor areas that may need work; but nothing major.
Get comparable sale prices, of course, from recent sales shown in local county tax assessor's office records. Sold prices are there!
****I'll check that out next week.
Back this up with real estate agent's valuable opinion. Ask--you will be successful. It is really that easy.
Good luck, tytitan. I know you can do it. Use ordinary, which is thorough, diligence as described above. Do not have analysis paralysis.
Making money permits reasonable risk, which you will be carrying. Do clear a profit well, on paper first.
Benevolent family members? Yes, this is highly likely. But due diligence is YOUR benevolence to the situation. Alan
****Thanks for your insight...lots of info to look over.
<font size=-1>[ Edited by fearnsa on Date 02/28/2004 ]</font>
Quote:
On 2004-02-28 08:39, rajwarrior wrote:
Well, I guess I'll have to give you an investor's point of view on this.
First, why was the appraisal done?
****If I'm not mistaken, the appraisal was done for refiancing propuses. I'll have to check with my father to make sure that was the reason.
Appaisal's don't necessarily mean FMV. Depending on the reason they were done, they could be greatly inflated. Make sure you know the true market value of the home.
****So if the appraisal was done for a refinancing ....would that the a soild number for FMV?
Second, you'll be buying a $160/month debt. Not a very good start to investing in my opinion. That's assuming that the amount includes taxes and insurance. If not, you've got more debt. Who's responsible for maintainence and repair, you or the "in a bind" family member? You could be buying a ton of debt.
****My father would pay the insurance and perform any repairs needed. And I see your point.
Third, it's great the your father is trying to help you, but family and business rarely miss well. I know from experience, trust me. I can see a huge problem brewing here. If you buy the property and it goes bad, you'll be upset with your dad. If you buy the property and you try to make money from it (ie remove the "in a bind" family member) then possibly your father, and likely the family member will be less than happy with you.
Frankly I don't see this as anything but problems and big trouble at the moment.
Roger
Thanks Roger for your comments.
Heres an idea go conventional mortgage.
Refinance at thirty years will have a minamal cash flow and you'll have your eqity to work with to help finance future deals when your knowledge and deals permit.
Sounds like Dads tring to give you a lesson on real life to get you started for your own realestate carrier.
Ed
What I'm getting from the majority is that this is not something I should go into. I was thinking that since the equity in the house was $20K, if it's FMV is $47k, that it would allow me to have a nice DP for a investment property near a college campus...there I would rent out 3 bedrooms and stay in the other and have the 3 pay the monthly payments and so on...no?
Just an idea.
Quote:
On 2004-02-28 11:43, ELOCK wrote:
Heres an idea go conventional mortgage.
Refinance at thirty years will have a minamal cash flow and you'll have your eqity to work with to help finance future deals when your knowledge and deals permit.
Sounds like Dads tring to give you a lesson on real life to get you started for your own realestate carrier.
Ed <IMG SRC="images/forum/smilies/icon_razz.gif">
Hey Ed...thanks for replying...
I thought about that too, but I'm a student with several student loans on my credit report...all are in "in school" status but it still hurts my FICO score and let alone i'm self employed. I don't think banks would even look twice at me...or I may be wrong. My credit isn't bad nor is it perfect. I have one paid loan with one bank, a car note that's almost paid out, credit cards that are around 50% utilization...trying to get that down to 20-30% because of FICO scoring.
But I maybe wrong...
thanks again for the relpy
Tyitan:
I thing Rajwarrior gave you some excellent advice. Family and business do not mix! I have learned this the hard way.
This is what I would do.
#1-Buy the house only if it is vacant, meaning your father gives the family member that is in the house the "boot"
not you!
#2-If you can qualify for a new loan, I would do that. I would even do an interest only loan or an ARM for low low payments. I would then go get a roomate to cover the payment.
#3- Get a line of credit on the rest of the equity to start your investment endeavors.
#4- Most important. You have to educate yourself. I would spend some money on some courses. There are great courses on this site. There is a Ron Legrand course on here that use to retail for $10k
that is now around $200. John Locke has an outstanding course on "subject to" which you will need because you will encounter houses such as this one with financing already in place. Theshortsalepro has an outstanding course also. I would buy all three if I were you and study them for a couple mos while you are doing what I mentioned above. Then go for it!
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."[ Edited by JeffreyAdam on Date 02/28/2004 ]
Quote:
On 2004-02-28 11:51, JeffreyAdam wrote:
Tyitan:
I thing Rajwarrior gave you some excellent advice. Family and business do not mix! I have learned this the hard way.
This is what I would do.
#1-Buy the house only if it is vacant, meaning your father gives the family member that is in the house the "boot"
not you!
#2-If you can qualify for a new loan, I would do that. I would even do an interest only loan or an ARM for low low payments. I would then go get a roomate to cover the payment.
#3- Get a line of credit on the rest of the equity to start your investment endeavors.
#4- Most important. You have to educate yourself. I would spend some money on some courses. There are great courses on this site. There is a Ron Legrand course on here that use to retail for $10k
that is now around $200. John Locke has an outstanding course on "subject to" which you will need because you will encounter houses such as this one with financing already in place. Theshortsalepro has an outstanding course also. I would buy all three if I were you and study them for a couple mos while you are doing what I mentioned above. Then go for it!
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
<font size=-1>[ Edited by JeffreyAdam on Date 02/28/2004 ]</font>
Thanks for replying Jeffrey... and I agree, the responses above are awesome. I do plan to purchase the subject-to course by John.... I was reading a thread just this morning, I'm becoming addicted to this place...lol, of how awesome he is with his students and the care he takes in making sure that they have the knowledge to go out and make the best deals possible.
Thanks again for taking the time and replying
[addsig]
you have to thank your dad for trying to give you a start. But, i dont know your dad, he could be trying to give you his headache!
1. I dont remember hearing the sale price. Do you get it with the 20k equity?
2. Are home appreciating in the area?
3. What is the expectation as to how long this distressed family member is allowed to stay?
4. Every 160 dollar negitive cashflow payment you make dips into the 20k equity.
5. Thank your dad but tell him as long as there is family there with negitive cashflow you dont see how it work for a FIRST investment. Investments in realestate need to have the flexibility of raising and lowering rent to suit your financial needs and situations NOT someone elses!!!
Quote:
On 2004-02-28 12:10, WheelerDealer wrote:
you have to thank your dad for trying to give you a start. But, i dont know your dad, he could be trying to give you his headache!
1. I dont remember hearing the sale price. Do you get it with the 20k equity?
****He's asking that I just pay what he owes which is the 27K.
2. Are home appreciating in the area?
****My best guess would be yes, but I have to do the necessary research to find that out for sure.
3. What is the expectation as to how long this distressed family member is allowed to stay?
****No, it's as long as she likes. If I did buy the house I don't think I could ever kick her out. So that's the major thing. I was thinking about doing Section 8 and having her apply for assitance and then bump up the rent so that I could get some positive cash flow. It's a 4 bedroom house w/ 1 bath. I think that could be possible.
4. Every 160 dollar negitive cashflow payment you make dips into the 20k equity.
***That's true.
5. Thank your dad but tell him as long as there is family there with negitive cashflow you dont see how it work for a FIRST investment. Investments in realestate need to have the flexibility of raising and lowering rent to suit your financial needs and situations NOT someone elses!!!
Thanks Wheeler great post btw.
[addsig]
What I ment was get your Dad to refinance the amount still owed on the original mortgage to lower the payments it would make sence for him or you. Then the rent will pay the mortgage.
Then later when you are more stable you can use the eqity to finance your very successful realestate career.
Take your time think about it then hit dad up in the morning.
ED
Quote:
On 2004-02-28 20:34, ELOCK wrote:
What I ment was get your Dad to refinance the amount still owed on the original mortgage to lower the payments it would make sence for him or you. Then the rent will pay the mortgage.
Then later when you are more stable you can use the eqity to finance your very successful realestate career.
Take your time think about it then hit dad up in the morning.
ED <IMG SRC="images/forum/smilies/icon_wink.gif">
We had a long conversation about 5 hours ago and he's going look into that on next week. I hope he can get it refinanced.
[addsig]
So we were thinking about doing the following:
1. Get 1st home refinanced for lower payments and use equity for new investments in Section 8 and Subject to.
2. Update's home curb appeal, purchase new refrig and stove.
3. the home has hardwood floors...very nice
4. Purchase Mobile home for family member (section 8 100%)
5. Rent or L/O 1st home to Section 8 or others.
I talked with a section 8 officer today and she informed me that it wouldn't be problem to get this family member on sectino 8 because currently there is still space...and that they have people wanting to rent a home as well.
Comments please...
[addsig]
Quote:
On 2004-03-02 15:29, tytitan wrote:
So we were thinking about doing the following:
1. Get 1st home refinanced for lower payments and use equity for new investments in Section 8 and Subject to.
2. Update's home curb appeal, purchase new refrig and stove.
3. the home has hardwood floors...very nice
4. Purchase Mobile home for family member (section 8 100%)
5. Rent or L/O 1st home to Section 8 or others.
I talked with a section 8 officer today and she informed me that it wouldn't be problem to get this family member on sectino 8 because currently there is still space...and that they have people wanting to rent a home as well.
Comments please...
I would check to be sure that you can rent thru section 8 to a family member. Here in Maryland we are not allowed to rent one of our properties under the section 8 program to any family members.
I'll have to look into that tomorrow...I hope that that's not the case in alabama though.
[addsig]
Called to the section 8 office and the recept...couldn't give me an answer and she said that someone would have to call me back.
Does anyone else know if this is true in there neck of the woods....that you can't rent to family members on section 8?
thxs
[addsig]