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Updated almost 9 years ago, 01/22/2016
Multifamily renovations
Hi there,
I am purchasing my first multifamily in June of this year. It is a triple decker in Central MA that is currently owned by my mother. She is no longer interested in maintaining the home and would like to sell it for me. It is structurally in great shape, but needs some renovating and updating.
The home needs a new roof, possibly new Windows, an interior and exterior paint job, new appliances and a few other minor things.
I am weighing my options but need some input.
I am leaning towards a 203k loan. I understand I must occupy the residence in order to obtain this loan but am wondering for how long? I hear minimum 1 year, but would like to be positive as I do not wish to occupy the property longer than that.
My mother will remain in the first floor where she lives currently and will pay me $1000 for the unit, I will live on the second floor for as long as required, and then spend the first month or two getting the third floor apartment to rentable standards, and then receiving an addition $1000 for that unit. I then plan to leave after my required owner occupancy and rent the second floor out.
I'm am getting this home for WELL below its appraised value since my mom is the seller and although I'm still a little ignorant on the details, I understand I would be walking into a deal that will give me a ton of equity.
I guess my main question is whether or not it would be a good idea, or even possible, to obtain a 203k loan for the price of the house + enough to cover one or two of the major issues with the house (roof or windows and then some updated appliances) and then take out a home equity line of credit (when and if I'm eligible) and take care of all the minor work while still living there. Or if I should use the 203k loan for everything needed. There are a few things I would like to attempt myself (hanging drywall over the old horsehair plaster and painting all the rooms) but I understand with FHA, an approved contractor must do all of the work. I will have very little/ no money out of pocket to put towards renovations right away.
If anyone has any suggestions, please let me know!
Thanks!
There's a lot going on here! I'll do my best.
FHA loans aren't really very excited about 'arms-length' transactions like this. You have to put in some effort to get them to agree to loan money to you.
Does your mother owe any money on the property? mortgage? line of credit? taxes? What I mean to say is, does she need cashed out because she has some financial burden that must be resolved? If NOT, then consider something like this instead:
Set up a Land Trust that contains the property, and names your mother as the Beneficiary. Once the Property is transferred, you can change the Beneficiary to you. The explanation is complicated, but this method could allow the transfer to occur more smoothly. It may also simplify the possibility of a 'Subject To' transaction if your mother does have a mortgage on the property. Additionally, you wouldn't have to live there, so you could get the added rental income right away.
Lastly, it's not really a super great idea to rent to a family member (drama, issues, what happens if your mom decides not to pay? will you evict her?) just my two cents.
Thank you for your input!
A little more to the story.
It is actually my childhood house and has been in my family for years. My father had a $70,000 home equity loan taken out on the house a few years ago but he passed away shortly after, my mother who co-signed the deal then received all of that debt once he passed. My buying of the house is to relieve her of that debt plus her car payment and credit card debt (everything included, about 100k of debt she would like to eliminate). The house is worth about 250k and I will be purchasing it for 120k.
I agree with the "not renting to family" deal, but I trust my mother fully, she will also act as my property manager for certain issues once I leave. I have no worries of her not paying rent because of her emotional attachment to the house, she would do anything and everything in her power to keep that house afloat if I somehow manage to screw it all up lol. (Which I plan to never let happen).
I just figure for my first deal, this seems like the best opportunity.
If she has $100k in debt obligations, you should pay $100k for the house. Pay less for the house will simply give you more room against the assessed value if you need to take out a loan later. I do think that you should pay for an appraisal before you do anything else ... just to make sure that it's not worth $50k or some horribly low amount like that.
It was appraised recently for 250k @Jeremy Pace
@Robert Cook excellent, then you should definitely gun for the $100k.