Deciding Whether to Buy Neighbor's House

[Suzy R.]

Hi BP Community,

I have a wonderful and kind neighbor who has used her house as a storage unit for about 20 years. She stores stuff there, but lives elsewhere.  She purchased the house for $299k in 1999.  In 2017 it was appraised at $247k. Zillow estimate is $357k.  It is 3 bed/1.5 bath on 1.45 acre just outside city limits.  The house was built in 1966.  In 1999 when she bought it, it was beautifully maintained.  Now it is in very poor condition with a large amount of deferred maintenance.  The land is overgrown and unmaintained.  She recently let me know she is considering selling it and would love for it to go to us. I have had a long time dream of turning this house into a beautiful furnished rental or B&B or airbnb.  I think it could be a profitable flip, but I want to keep the property. I am struggling with the following:

How to properly value this property considering the condition it is in...

How to value an awkward and somewhat unusable acre...it is shaped like a large splinter.

Wanting to maintain friendship with my neighbor and respect her and her property while still trying to get the property at a price that makes it a wise investment...

Emotionally, I really want this property because of what I would love to do with it.  Numbers-wise,  it would be very hard for this to make sense as a good investment.  

Does anyone have any experience with or advice for this sort of situation?

[Greg Scott]

Suzy:

The appraisal is probably pretty close to current value, assuming the condition hasn't deteriorated significantly since it was completed.  (Side note:  Ignore Zillow)

The first thing I would do is decide on your preferred use of the property.  Those options are all very different and have different implications on workload and lifestyle, also acquisition and rehab the property.  (Please be sure you really want to live next door to your tenant!)   It is not clear why you threw out the idea of a furnished rental rather than just a rental.  Another alternative is to fix it up and move into the new house, then either renting or selling your existing house.

From an offer perspective, i would just be honest with your neighbor that you would love to buy the house but it would only be as an investment so you couldn't offer as much as someone who might want to live there.  On the other hand, she wouldn't have to go through the troubles of cleaning / fixing / listing if she sells to you.    

Do the math like an investor.    After Repaired Value minus repair costs is your starting point.  Then shave off more for the brain damage to do all the repairs and some level of excess profits, typically 25% or more.

Good luck