Estate Sale - Should I buy myself?

Question

Hi,

I am not a real estate investor and the extent of my real estate experience is owning my own primary residence for which I have a mortgage.  I have a unique situation where a long time family friend inherited a single family house in Jersey City from her deceased mother.  She herself is now in a nursing home and will not be living in the house.  The house is going to be sold as part of settling the estate with the proceeds going to the nursing home to pay for her care.  The house would have gone to me when she passed away as she had no other relatives.  My primary concern is for her care, but she is upset that now the proceeds from her mother’s house will go to the nursing home without me getting anything.  One option I am trying to decide on is whether or not I should purchase the house myself as an investment property with the intention of either renting it out or fixing it up and selling it.  It is a single family home and sits on an irregular sized lot so I don’t believe it can be knocked down and rebuilt, but would definitely need to be renovated.  Also maybe turning it into a two family home to maximize rental income is an idea.  Just wondering since I am new to this if I would be taking on more than I can chew and what the process/options might look like.  Obviously my own financial situation/financing would be a big factor, but mainly looking for some perspective in terms of real estate opportunity here.  Any thoughts are appreciated!  Thank you.

Steve Vaughan · Answer

I'd probably stay out of it.  Even if you first learned enough about owning and operating a rental (out of area?) to protect yourself, this will still be under the 'arms length ' microscope.

This should be a lesson in wealth transfer.  The informed dribble out our wealth to our children when they need it most- match earnings when they're young in a Roth, then help at major milestones up to their mid to late 30s.

Then generation skip the houses and big stuff.

Inheritors in their senior years are not benefitted. $5000 well placed in your 20s is worth infinitely more than anything you get when you're 70.

Bill B. · Answer

You’re probably going to have to pay market or at least near market prices anyway. Medicare/nursing home isn’t going to let her sell it to you for half price. So why this home over any other? It doesn’t sound like a good first deal. If you get lucky you end up ok. If you something unexpected pops up you lose money on the deal. Barring a history of renovating homes I’d pass. Pretend you didn’t know this person. Would this be a house you’d be looking at buying?

good luck.

Erik Heger · Answer

Thanks, Mitchell.  Sound advice as well.  Yes, one of my biggest concerns and unknowns is how much a gut renovation would cost since I don’t have that experience.  I guess it makes sense to try to connect with a local contractor to get an idea as well as a realtor about potential rental income.  Thank you!

Erik Heger · Answer

Thanks for the replies and guidance.  I really appreciate it.  The only other thing I probably should have originally added (if it changes anyone’s thoughts) is that the property is next door to another house that is connected by a wall.  That house was recently purchased by an investor who expressed interest in buying this house.  I know it is valuable to that investor because then he would be able to knock down both if he wanted to and put up a multi family unit.  On the other side of the house is a set of four garages that someone else owns and rents them out.  Being in an up and coming neighborhood, I feel like that is a prime location for a developer to look to purchase (the houses and the garages, which my house would be right in the middle of) to put up a multi unit dwelling.  So I guess part of my thought was that if I purchased the house now, I could potentially try to sell it for more later since it wouldn’t be a “forced” estate sale and be more valuable to a larger investor.  Not sure if I am thinking about that correctly, but that was part of my thinking.

Erik Heger · Answer

Hi Devin,

Thank you very much for your response and guidance.  It sounds like sound advice and a good framework to help me make a decision.  I really appreciate it.

Thank you!

Erik

Kevin S. · Answer

If the proceeds from the sale has to go towards her nursing home expense, like Bill said, it has to be sold at market price.  In that case this home is just another home on the market.  Would you buy it if it was just another home on the market at the price it is supposed to be?

Devin De Lange · Answer

Hi Erik,

To kick off analyzing the potential of this deal, and whether or not it's worth investing in, I would ask you what your end goal is. Do you want to take on the large project of a flip and sell, and walk away with a lump sum of capital, or do you want to buy and hold -- putting in the needed renovations to make it renter friendly and then getting a tenant into the property to pay off the asset? In the buy and hold situation, depending on what you buy it for, the expenses of owning/taking care of it, and how much you can rent it for, you could have some cash flow each month and have a second property that appreciates each year.

The other big factor here is -- once you make the above decision, what are my expenses likely to be? How will I finance the deal? With a hard money lender for a flip, or with a more traditional lender for an investment property.

To summarize, I would ask yourself -- what is my end goal? How much work do I want to put into this? What financially makes this worth it? And if you can determine which strategy to go with and it makes financial sense, you go for it.

I hope this helps!

Estate Sale - Should I buy myself?

Estate Sale - Should I buy myself?

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