Family member selling home, what are my options?

Question

Hello,

A family member is preparing to sell her home, and we are trying to decide what would be beneficial for us in purchasing her home, and something equitable for them as well.

Here is some of the info:

-Wants to list home on the market for $199k,  her realtor said she would get minimum $175k if she did list it.

- She owes $90k on the mortgage on the home.

-Home currently has tenants and rents for $1,400/mo. Tenants would likely stay if whoever purchases the home wants to continue renting.

We are trying to decide if we should buy and continue renting, buy and flip, or something else. I am skeptical of the pricing evaluation given by her realtor. The house is older and likely would need upgrades and repairs to get into a good shape, and the neighborhood is not very desirable. Should I get my own realtor to evaluate and see if the conclusion is the same? Can I pull comps myself in some way? The house is probably twice the square footage of the other homes in the neighborhood.

I have been racking my brain for a way to get involved, so I wanted to see what other ideas people might have.

Thank you in advance!

Andrew Freed · Answer

@Cole O'Dell - Yes, have another agent do a CMA on it to determine the market value of the property. Additionally, see what current rents because if it rents for $1400 and the cost is $199K, it doesn't sound very profitable as a long term rental. You'd want something closer to the 1% rule.

Also, some other strategies to consider would be a medium term rental, airbnb, seller finance / subject to, novation agreement to flip it with your family member as a partner. I would explore all of those options to see how many exit strategies you have. If you have very few profitable exit strategies, it probably isn't a good deal.

Andrew Freed · Answer

@Cole O'Dell - Take over your family member's mortgage via a subject to agreement and offer her a seller finance note for her equity, e.g. if she has $60K in equity, you can offer her a $60K note at 5% interest amortized over 30 years with a 10 year balloon. That is assuming that the property is profitable even after you pay both of those liens + the expenses associated with it.

Kiera Underwood · Answer

@Cole O'Dell How did this turn out?

Will Fraser · Answer

I'll give you $175k for it provided good location and no converted garage*. Deal?

Alyssa Dyer · Answer

@Cole O'Dell my right hand @Kiera Underwood evaluates properties from every angle for investors considering buying in the Oklahoma City area. She'll be happy to take a crack at this. She's focused most on short term rental positioning right now, but has focused on long term rentals for years so she'll be able to quickly give you performance comparisons between the two. She's also a licensed realtors so can shoot you a quick evaluation of the property. If any of that is helpful just let her know!

Nate Sanow · Answer

If you want to pm me I can try to help. I’m licensed in Tulsa but we have access to OKC mls as well. I don’t need to be your agent to shed some light on it. I’ll actually say in that agents defense, they might have been preparing the client for reality. Now is not the time to have aspirational pricing. I’m looking at comps across 12mo, 6mo, 3mo and 1mo time spans to find correlations, possible decrease’s, higher days on market, etc… the agent who made that suggestion could be factoring in the fact that we are headed into the winter with the highest interest rate we’ve seen in awhile and are trying to help the client expedite. Having said that, I can render an independent opinion if you like. I wouldn’t trust your own comps for 100% accuracy as platforms like Zillow syndicate their data from our MLS and often are geographically off and use algorithms that don’t understand the block by block, apples to apples nature of comparisons.

Eliott Elias · Answer

I would subto it. Assume the mortgage and give them a down payment they're happy with

Joe Norman · Answer

Something important to consider is this is a family member and it will be hard to keep this transaction arms-length. If they feel that they gave you a discount (whether real or based on false assumptions of market value) then that could damage the relationship.

There are definitely benefits to both buyer and seller in doing an off market sale like this, just make sure they have all the information you have so that it stays above board.

Good luck!

Abby Marshall Le · Answer

Hello! I'm a realtor in Oklahoma City and work a lot with investors on buying, selling and renting houses. If you'd like a CMA or rental analysis run on it, just let me know and I'd be happy to help.

Cole O'Dell · Answer

@Andrew Freed - Thank you. I will look into that some more!

Family member selling home, what are my options?

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