Chandler, AZ · Member since 2014 · 5 posts · 1 vote
Disclaimer: Brand new to REI, but love investing and have always wanted to add real estate to my portfolio. That's why I came to BP: to educate myself and start down that path.
My dad is not well, and I just received a boatload of legal paperwork from his attorney. I don't fully understand all of it, but basically he’s leaving everything to me, including his modest 2/2 townhome. He’s verbally told me “you can do whatever you want with it when I’m gone: assume the mortgage/ownership, or just let the banks have it.”
I thought this might be the perfect opportunity to gain my 1st rental property, however…
1. The townhome is in a BAD neighborhood: violent crime including armed robberies, theft, and constant drug busts.
2. My dad paid way too much, and is upside-down on the mortgage.
3. I feel my dad has OVER renovated... sinking tens of thousands of dollars into high-end windows, hardwood floors, high-end appliances, and a totally remodeled kitchen.
Given those factors, I don't feel that I could charge high enough rent to cover the mortgage AND have a property manager--which I'd definitely want... considering the neighborhood/crime. Additionally, I don’t think I could sell it for anywhere NEAR what it’s worth. His renovations have, in my mind, put the value WAY above comps in the neighborhood.
Thoughts? Ideas? Recommendations?
I really don’t want to “just let the bank have it” as my dad suggested. That seems like a ridiculous idea. I'd like to think there's some kind of investment opportunity here.
Bobby - based on your info - this is a quick turn property and should be short sale'd. If you are the Seller or related to the Seller the bank will not allow you to "profit" on the short sale. If I were you, I would find a Buyer that could buy from the bank at the right discount, then flip the property for a profit. I have found that the banks tend to not want to be "in da hood" either, so I have gotten some good discounts there........PM me if you need more info. I said a prayer for you and your Dad...
I thought this might be the perfect opportunity to gain my 1st rental property, however…
1. The town home is in a BAD neighborhood: violent crime including armed robberies, theft, and constant drug busts.
2. My dad paid way too much, and is upside-down on the mortgage.
3. I feel my dad has OVER renovated... sinking tens of thousands of dollars into high-end windows, hardwood floors, high-end appliances, and a totally remodeled kitchen.
Hi Bobby,
I am new here too but wanted to answer based on my professional experience. I think you already know this isn't a good investment -- but I want to give you a few thoughts, ideas and personal experience. Not only do I have the business end of this, but the personal experience as well. My mother left me a home in the same scenario.
#1 Advice: DO NOT let sentiment get in the way of the right business decision. I did and in the end, gained nothing but headache and heart ache.
That said, here are a few thoughts:
-Depending on the lender and if you have cash, you make an offer direct to investor of the note for just below market value. It must be a cash offer. Of course, the lender will have no incentive to do this unless the mortgage is in default or it makes sense to them to short the note now due to other reasons.
-There may be a Due on Sale clause in your mortgage that states the bank can force a sale when and if title transfers - since it will be transferring to you, you may be forced to pay off the note through a refinance or a short sale. (Alternatively, and probably, the lender may not even care or notice as long as the note continues to be paid. Maybe for a very long time)
-As the heir to the property you may be able to refinance into a HARP loan and short the current mortgage, which of course pays off lender and gets the property to market value. This again depends on the lender, your credit, etc, etc. I would have to check guidelines on HARP.
-You have the right to rent out the property and collect rents until you can make a deal with the bank, your sell it...or if the mortgage isn't paid, they take it through foreclosure. Consider what market rents are and what your ROI would be. Then use only 75% of the rents as the "gross income" of the property. That is my guide anyway. 75% is what a lender would consider as the gross income anyway. It's a good rule of thumb.
-If you are not a signer on the note, you will have zero financial responsibility for it and not making those payments will have no effect on your credit. However, you may end up responsible for taxes, insurance and maintenance personally. Make sure they are paid.
-If you do not live in the property, when it becomes a "rental property" the tax and insurance escrows may increase significantly.
-Being out of the area and unable to personally manage the pre-qualifications of your potential renters, the collection of rents, property maintenance, evictions, etc....and as it seems you have no experience....sounds like a worse aqnd worse deal as we move along....
My advice? Rent out the place, collect the rents, sell all the upgrades or add them to your home and replace them with lower end if you want to rent it out and get out of it when the time is right. Take advantage of any short term income if you can...strategize...all the while following, Advice #1.
Hope some of this helps your strategy. Best wishes.
Wow, I had no idea I wouldn't be allowed to profit from the sale because I'm related to the owner. So, they just expect relatives to assume ownership and live in the dang thing?
I like your suggestion about partnering with someone. I had thought there might be some sort of possibility like this, but not being experienced in REI I didn't know the logistics of how it would/could work.
EDIT: @Tiffany Arthur sorry... you posted while I was replying to Robert. Reading your post now...
Thank you @Tiffany Arthur for the detailed reply. Luckily, I've not signed anything, so I'm not a signer on the note. To the best of my knowledge, I'm not legally responsible for anything unless I choose to be. Really, I should have someone go over all this paperwork with me, so I actually know what to expect.
I can tell that I'm going to need help with this, when the time comes. I really don't want to just throw my hands up and "let the bank have it"... but the complexity of how to do otherwise (and potentially profit from it) is way beyond my expertise.
I'm sorry to hear about your father and GB him for thinking of you with this home.
1. Find out for sure that the property is upside-down (mortgage company for pay-off and realtor for CMA). The value may surprise you.
2. Since your dad used an attorney I would seek his/her advice on how to hand the keys over to your father's lender without ever taking ownership yourself.
The last thing you want is a short-sale on YOUR credit report.
To clear up previous post, you CAN benefit from sale of the home if there are proceeds left after closing costs and mortgage payoff; Robert was saying you CANNOT benefit if its a SHORT sale (selling for less than what is owed).
I am the trustee on my deceased mom's estate and working through the sale of her home; however, there is enough equity in the property to make it worth my while. Otherwise, Bank of America would own yet another home :)
Go see father's attorney this coming week. There may be paperwork that he can get your father to sign to make this easier. Of course, your dad does not have to know that you may not be accepting this gift. Best of luck to you and your family.