Getting our feet wet

[Scott Baker]

My wife and I just inherited 50% of a family homestead when her father passed away here in Spokane in March. We are new to the idea of a rental and trying to gauge our ability to execute on it. The house is paid off and clear, but her brother owns 50% of it. My thoughts are with the rehab the house needs I should get an appraisal on its current state.... buy him out with it current value then my sons and I would put in the work to rehab the place to turn into a rental. I think maybe setting up an LLC to buy out my brother in law might make sense? Then I have a solid baseline to start the rehab. Thoughts? Thanks in advance!

[Brad S.]

First of all, sorry for your loss.  :(

A few things here prior to making any decisions:
* Get an idea of what it's current value is now, both rental and sale value?  ...talk to an experienced local realtor/broker, etc.

* Assess what rehab work needs to be done and assess the potential rehab costs. There are still materials and maybe some other specific trades, which you and your sons may not be able to do.

* Ask that same real estate professional above, if it is worth doing the rehab, if you decide to sell? In some markets and at certain times, it may not make a significant difference compared to the time and money you would put in to do the rehab.

* To the same real estate professional, find out their opinion of the area and the current and potential growth and appeal of your property and the neighborhood (market) to potential buyers and renters. You may also want to call local property management companies to get their estimated rental amount and their feel for the rental appeal of your property in the area, etc.

* Talk to your tax professional and find out what your tax implications are from inheriting the property to buying out your brother and putting it in an LLC, etc.

* Also find out if the property's tax assessment changes with any of the scenarios above. In my state, CA, there are drastic property tax changes which need to be accounted for.

* Get an insurance estimate for a landlord policy, to put into your rental equation.

Basically, you want to assess the current situation prior to making any actions, and decide what the best avenue is for you. You may find that the equity is best put into a rental in a different market, more inline with your goals, or maybe it makes more sense to sell and put the money into dividend stocks until the market/s are more favorable to future appreciation, etc.

[Tanner Lewis]

I would consider cash-out, refinancing the deal, and buying out your brother-in-law. Since it is vacant, this would probably work best with a conventional loan, and the proceeds would be used to pay for the reno + buyout. Once you finish the rehab and get a tenant in place, you can go ahead and refinance it again with a DSCR loan if the cash-out amount makes sense

[Jonathan Greene]

My extensive experience with heirs and probate tells me that nothing is as simple as just buying your BIL out. Most heirs want the finished price for their half or quarter even when it's in the worst state. Or, if you buy them out nicely when it's a dump, and then you renovate it, they later claim they would have done that. So, first step is to determine what the BIL wants out of his half. Maybe he wants to stay in it and you get a silent partner? I agree though with everyone, best bet is to buy him out asap so you can do what you want with it to upgrade it and then decide.

[Scott Baker]

Quote from @Jonathan Greene:

My extensive experience with heirs and probate tells me that nothing is as simple as just buying your BIL out. Most heirs want the finished price for their half or quarter even when it's in the worst state. Or, if you buy them out nicely when it's a dump, and then you renovate it, they later claim they would have done that. So, first step is to determine what the BIL wants out of his half. Maybe he wants to stay in it and you get a silent partner? I agree though with everyone, best bet is to buy him out asap so you can do what you want with it to upgrade it and then decide.

 I think we are pretty fortunate that he seems to be a "Whatever" type of guy when you ask for his input on the subject.  He is a minimum wage worker with no handy skills, so it would be hard to partner with someone that doesn't have the resources to move us forward.  My wife and him both named me as administrator of the estate, so that helps too.  I think he would like the steady income too, so parts of me has thought of writing up a unsecured loan agreement with him and just paying him out monthly to give him some reoccurring income vs a lump sum, but then I believe he would have other pay taxes on that income vs inheritance. To your original point nothing is every simple..  Thanks for the feedback!

[Scott Baker]

Quote from @Brad S.:

First of all, sorry for your loss.  :(

A few things here prior to making any decisions:
* Get an idea of what it's current value is now, both rental and sale value?  ...talk to an experienced local realtor/broker, etc.

* Assess what rehab work needs to be done and assess the potential rehab costs. There are still materials and maybe some other specific trades, which you and your sons may not be able to do.

* Ask that same real estate professional above, if it is worth doing the rehab, if you decide to sell? In some markets and at certain times, it may not make a significant difference compared to the time and money you would put in to do the rehab.

* To the same real estate professional, find out their opinion of the area and the current and potential growth and appeal of your property and the neighborhood (market) to potential buyers and renters. You may also want to call local property management companies to get their estimated rental amount and their feel for the rental appeal of your property in the area, etc.

* Talk to your tax professional and find out what your tax implications are from inheriting the property to buying out your brother and putting it in an LLC, etc.

* Also find out if the property's tax assessment changes with any of the scenarios above. In my state, CA, there are drastic property tax changes which need to be accounted for.

* Get an insurance estimate for a landlord policy, to put into your rental equation.

Basically, you want to assess the current situation prior to making any actions, and decide what the best avenue is for you. You may find that the equity is best put into a rental in a different market, more inline with your goals, or maybe it makes more sense to sell and put the money into dividend stocks until the market/s are more favorable to future appreciation, etc.

 Awesome!  Thank you so much! I have all these thoughts but you did a fantastic job of organizing them and pointing out some things I didn't think of! 

[Scott Baker]

I feel like I need to get a licensed home inspector in there too to check things out that I might not be seeing... House was built in 1907 on a rock foundation, has floor sag, and original wiring and plumbing. While the "price" is cheap, it does come with lots of potential headaches.  The pros is it's got a great exterior with steel siding and a new roof. also has a 1200 sqft shop that is insulated.