Buying a grandparents home to flip?

Question

this is a strange (morbid) subject. My wife’s grandfather is 101. There are four heirs including my wife’s parents. Several family members are not on great terms. Her grandfather has a home (in Nassau county NY) that needs serious updating and some significant repairs. Average home prices I’ve seen are anywhere for 800 to 1 million for a home his size but in more updated shape. My thought is to attempt to purchase to flip after his passing). Any thoughts on how this could work for the benefit of everyone without anyone thinking I’m trying to “get one over” on them? Is there a way to do things without incurring a ton of closing costs? The property is currently in a trust. This may all be a pie in the sky dream but was wondering what you all thought and any advice you may have. Thanks!!

Peter ODougherty · Answer

Thank you Theresa and Noah. Are there any tax implications for the trustees in doing this? And to get a mortgage for a flip , would it be the same process as if I were buying it on the open market? I currently have a conventional mortgage on my primary residence.

Theresa Harris · Answer

I agree with the open discussion and other points Noah mentioned. I'd also have two relators walk through it and give a price for what it would sell for on the open market.  Offer the family that amount and then do what you want.  That is the easiest way to do it and do a private sale to save on commission.

Dan H. · Answer

I have purchased from trusts as an insider.   I agree get 3rd party valuation, however I believe off market your offer should be 6% to 9% below that valuation for the sellers to net the same amount they would on open market.

Then you have to worry about change of mind.  I purchased similar to you with all parties agreeing to the terms (8% below appraisal on property with drastically under market rent in a rent controlled jurisdiction).   I did great rehab that added a lot of value (it is what I do). one party no longer liked the deal and threatened to get a lawyer.  I reminded him he signed a document with the trust attorney indicating he was good with the terms (it was also ~2 years after the sale had closed).   If I had done no value add, he likely would have continued to have been fine with the agreed terms (it would have been loosing thousands every month due to reassessed property tax and drastically under market rent). Because I did a good/great job adding value he is no longer happy.  It has put some friction in our relationship.  Even though I am up around $700k, I would have passed on this purchase and found different candidate property if I knew it would cause an issue.

Point is that you can treat all parties fairly, but there could be some seller’s remorse especially if you do a good job at increasing the value.   Also some people have no comprehension of the work and skill involved in executing a good value add and the compensation I expect for executing one.

Be cautious in dealing with family.  recognize there are various risks, not just financial risks.

Good luck

Peter ODougherty · Answer

No pain, no gain? Lol. I’ll take it under advisement. Thank you, Bon.

Nathan Gesner · Answer

Agree with the others. Have an objective third-party determine value in its current condition. Let's say they tell you it's worth $800,000. You approach the four heirs and offer to pay them $200,000 each to purchase the home. They get their cut, you get the property.

Of course, you have to figure out what it is worth and whether that's a wise investment for you. Just because you can buy it below market value doesn't necessarily mean it's a good investment. Then you have to convince four heirs that they should sell it to you for less than it may sell on the open market.

Noah Wright · Answer

Great questions! Here are some insights regarding the potential tax implications and mortgage process:

• Tax Implications for Trustees: When the property is sold, the trustees may need to consider capital gains tax on the appreciated value of the home since it’s currently in a trust. However, if the home is inherited, the beneficiaries typically receive a step-up in basis, which can minimize capital gains tax when the property is eventually sold. It’s advisable to consult with an estate attorney or tax advisor to understand the specific implications for your family’s situation.
• Getting a Mortgage for the Flip: Yes, the mortgage process for a flip would generally be similar to purchasing any property on the open market. You’ll need to provide documentation such as income verification, credit history, and possibly a property appraisal. If you’re considering financing renovations, look into renovation loans that cover both the purchase and improvement costs.

It sounds like you're making progress in navigating this situation thoughtfully. If you have more specific questions about financing options or renovation strategies, feel free to ask!

Best of luck,Noah

This response provides clarity on Peter's inquiries while maintaining a supportive tone.

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Noah Wright · Answer

Hey Peter,

First off, I understand this is a sensitive situation, so kudos for approaching it with care. Here's a few things you might want to consider:

• Open Family Discussion: Since there are multiple heirs and not all are on great terms, it’s important to have an open conversation with everyone involved. Framing the idea as a way to preserve and improve the family property (rather than focusing on personal gain) might help avoid misunderstandings. A transparent approach will go a long way in making sure no one feels left out or taken advantage of.
• Purchasing the Property: Since the home is currently in a trust, after the grandfather’s passing, the property will be distributed based on the trust terms. If your wife’s family agrees, you could look into purchasing the home from the trust, possibly before it enters probate, which could save time and legal headaches.
• Reducing Closing Costs: One way to reduce closing costs is to negotiate a private sale among family members, which might save on agent commissions and some taxes. A family attorney could help structure the sale to minimize legal and closing fees. Alternatively, inheriting the property and doing an internal buyout (where your wife and you buy out the other heirs) might allow you to bypass some typical closing costs.
• Renovating and Flipping: If the home is in need of significant repairs, getting an accurate estimate of the renovation costs before making an offer is critical. Since Nassau County home prices are high, ensuring there’s enough room for profit after the flip is essential, especially considering the potential family dynamics and the costs involved.

It’s definitely doable, but being upfront with the family and working with an estate attorney are key to making this work for everyone. Let me know if you have more questions more specific to the renovation financing, and good luck navigating this!

Buying a grandparents home to flip?

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