Contractor Talk - Professional Construction and Remodeling Forum banner

Investing in a home

3K views 17 replies 12 participants last post by  ButlerDesigns 
#1 ·
What are you inputs on this situation. I have asked about 20 people so far and all 20 said to do it.

We have a a family member who is selling their home because of medical issues with heart and now are stuck in a nursing home in CA. Here is the deal. This home was bought in 1950's and is completely paided for. It has never been updated so my family members are going to put it on the market for just what the land is for $900k. All homes being sold in the neighborhood are going for 1.7million each. So they have offered me the home for 850k since im family member. They just want it sold and gone so they can fly back to CA. They do not want to deal with any contractors or anyone because they are all the way across the U.S. Would this be something I should take on being I have a Investor ready to give me 120k for materials and my company will do all the labor. We will complete it all within 1 year so Capital Gains tax is waived. The house is in fantastic condition. I honestly do not think there is a dent in any wall in all 5,500 sq. ft. It's all just original sinks, toilets, tubs, etc. I just ripped up all the carpet throughout entire house and it brand new 3/4" hardwood flooring under it. You cant find a scratch on it. If working with the investor what kinda deal would you work out being you will supply all labor. I will pay all my employees to be there working for lets say 6 months and Investor is putting up 120k for materials. Where I get comfused is what percentage should I ask for 50/50? :rolleyes:
 
See less See more
#3 ·
Oh Lord I hate these situations.:sad: There is so much unreliable information that everything is just speculation. 1.7 million area, family willing to give you a break, outside investor... 6 months to do the work... (who knows how much of this is accurate or not?)

Let me tell you from experience that there is pretty much 1 or 2 right ways to get involved in real estate as an investment and about 10,000 wrong ways!

Most people unless there is a case of mental illnes or something aren't in the habit of selling a house for just the land value ($900K) if the property is actually worth more than that. However some people are so out of touch with what they think something is worth that they will create false values such as the house should be worth 1.5-1.7 million.

Having experience in real estate investing the only way I would get involved with this project is as an equity partner with the owners. My contract would state my company would do all the work at cost during the renovation, with the owner paying those costs on a weekly basis. The owner would also pay for all materials at cost. When the renovation is done the property would be sold and we would split the profits 50/50. My contract would as further get very specific about protecting me with minimum requirements for profit and a fall back in the worst case scenario if profits after the sale don't meet a certain dollar amount to go back and pay me a certain dollar amount of profit on top of all the labor. Before I even got too far into this, I would also have the owner pay for an appraisal and get a Realtor involved in pulling comps. You need a whole lot of due diligence done first, especially with the dollar amounts you are considering getting involved in.
Are you really serious about footing the bill for labor for 6 months?:eek:

I'm sure there are all kinds of issues that would make my way difficult, such as the owners don't have the money to foot the costs of renovation, bad credit issues or all of the other things that usually come along to create the situation you have where somebody wants to give something away for nothing.

I've always found that too good to be true, or people trying to move very quickly or people trying to give something away while trying to convince you of the high value of it are always big red flags to a huge disaster waiting to happen.

You can post the address on here and we can look it up on zillow.com to at least see something concrete.

Just be so very careful with all this.
 
#4 ·
A couple more things.... like I said there are really only 1 or 2 ways to do real estate right but 1000s of wrong ways.

Nobody ever needs to do a 50/50 split with anybody putting up the money. Money is a fixed expense. Money is available to ANYBODY if the numbers are correct. Money is the easiest thing to get in this situation IF the numbers are correct. You don't even have to have good credit or any credit to get this type of money, the property is the credit. The only time money is hard to get is when the numbers don't add up.

If your numbers are correct you will have hard money lenders virtually fist fighting each other to give you the money. Experienced hard money lenders will lend you the money based on the value of the house as it is and the value of the house as it will be once renovated. The costs of that money will in no way even approach the dollar amount of a 50/50 split.

Like I said, investment money is easy to get, and can be relatively or proportionately cheap (if your situation is accurate), somebody with the money is not the big kahuna in this project, don't let them or let yourself be fooled into believing they are worth more to you then they are, they are nothing but an impersonal check book looking for an above average return on their money with the property being used as collateral. Their risks are minimal compared to yours.
 
#5 · (Edited)
If your numbers are correct you will have hard money lenders virtually fist fighting each other to give you the money. Experienced hard money lenders will lend you the money based on the value of the house as it is and the value of the house as it will be once renovated.
Those HML's also have a good idea what the real values and costs are. They like to lend in situations where there is plenty of equity, to protect them against borrower default. Contacting your friendly local HML is a worthwhile piece of the due diligence puzzle.
 
#6 ·
I just ripped up all the carpet throughout entire house and it brand new 3/4" hardwood flooring under it. You cant find a scratch on it.
No staples?? That would be rare in my area.

Here is something to consider if your numbers are right. Buy and flip. Skip the fix part. The "fix" part exposes you to a bunch of liabilities and if you're inexperienced you could do as well with a flip.Or better yet take a 60 day option and find your buyer in 60 and double close.

I've had my own experience with long distance "estate" homestead transactions and know the buyer got a hell of a deal that they would not have gotten if the property had not been 700 miles away. People have lives and distance is a "big" and expensive issue in settling estates.

Check your numbers closely and go for it . If you are unsure of your numbers find someone who you can consult with to be sure.
 
#7 ·
Hey guys thanks for all the input. Yes this is all true about they will give me a price break for being family. Lets just say that the owners are sitting on more then 20 million and own a big movie production company. So this would be chump change as they basically said because selling it for 900 they would profit all back cause its paid off. Thats why they dont want to waste time flipping it. As for taxes I know taxes have to be paid, but Capitol Gains Tax is 28%. I think I might take the jump. I have till end of August to decide.
 
#9 ·
Capital gains taxes are in a very confusing flux right now. Consult a tax attorney before you think you will be getting away gains free.

Mike.. solid information. I'm with you..there are 1000 ways this can go bad. I can't even begin to imagine the budget breakers in a one year long remodel.

Here's a question. Is the "family discount" because they think you will live in the property or do they not care what you do with it after settlement?

Another question.. Whose holding the paper for the property? Payments on an $800,000 mortgage are pretty step for a year. You could be talking about $80,000-$90,000 in carrying costs on a year long project.

If you decide to go forward and renovate the property why do you need an investor? If there is as much equity as you say in the property, getting a second mortgage for rennovation should be easy for the amount you need.

The best advice I have seen is to put on some lipstick and flip the property for the built in equity. When I look at deals whether they be real estate or a business. I look for profit from day one. It has to be a deal I can put together by myself and won't require my hands to be overly involved. You can quick sell this property for 1.1 million, never do a lick of demo and walk away with a couple hundred thousand. Your investment probably wouldn't even be ten grand plus some short term carrying costs.
 
#10 ·
I'm not near as smart as some of these guys but I do know this Anything you do to try and make money involves a risk. If it was easy everybody would do it. I suggest you take in all the advise from above and your own knowledge of the situation then if you think the risk is worth it go for it.
 
#11 ·
Hey guys, Just finished speaking with my Accountant and Attorney. He said 15% for Capital Gains taxes and 6% for State. He also told me to personally purchase this property rather then my business because of double taxing after taking out Capital and State. So anyways I am going to take a 21% hit on profit, but I just cant let 500k slip away and the house is in fantastic condition just everything from toilets, tubs, lights, entire kitchen and landscaping is totally 50's.
 
#13 ·
I am purchasing the home and keeping it 6 months. We are already preparing for the capital gains tax because I am not holding a 850k mortgage for 2 years. Thats just dumb. So by time everything is done and paid for we should walk away with atleast 380K. Not bad for 6 months I suppose.
 
#18 ·
Im positive it wont be a flop. I have 2 other Investers already asking me if they can get in on the deal. I told them no i'm already done with all the investing I need and their eyes were :eek:. As for the slow market, yes its out there. The only thing is Million + dollar homes in this particular area do not stay on the market for more the 45 days. Now if I price it fairly, we will be just fine. If i jack price to 2.1 million being greedy then yes we will have problems
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top