Triplex. First time investor. Wanting opinions on first deal.

[Mason Anderson]

I am diving into the real estate field. Taking over my Gmas Triplex. I have looked at doing this many ways and think I have found the best option. Let me know if you agree or disagree... please. This is my first deal and would love all the help I can get. 

Triplex in a pretty decent area close to town. My Gma owns the property and owes nothing. Was hoping to take it over on contract. Have her give me the title for a small down payment. Then pay her $400-$450 monthly for 8 years and maybe 6 months depending on appraisal. Needs a ton of work, but I am hoping it appraises for as low as possible. Thinking $40,000. I have the money to do rehab, hopefully $10,000-$12,000. Also want to add SQFT by enclosing the porch and adding another bedroom to the front apartment (would this be worth the money it would take to do it?). Hopefully after all that the new appraisal comes back at around $68,000-$75,000. I have 3 pretty strong comps supporting that. Then looking to take 75% equity out and find another deal. Would rent the plex out and cashflow for around $600-900. My total investment would be the small down payment ($1,000-$2,500) and the rehab ($10,000-$12,000 with porch addition and bedroom $15,000). 

Any tips or opinions?

[Erik W.]

It's nice that your Gma wants to be nice to you.  I encourage you to be the same, and more!

Think of this: your entire family is going to be watching this transaction like an episode of reality TV.  It will dominate conversations at holiday dinners.  Every motivation and action will be scrutinized 10x more than if this were an arm's length transaction with a non-family member.  Document, document, document!  Have HER attorney draft the papers.  Have HER heirs review the documents.  Everything done in writing.  No oral agreements.  No spit and handshake deals.  No arm twisting the appraiser to get you a below market sale price.  You should expect to pay market rate, nothing less.  Make sure it's all done above board and her interests (and yours) are fairly represented.  Lay out the plan for the rehab.  Talk about the work and estimated costs.  Discuss what you think it will be worth at fair market value once you're done.  Make sure everyone sees it, and for extra precaution I'd even ask them to sign off on it.  Abundant clarity and fair dealing are your goals.

I'm not saying this deal CAN'T be done or SHOULDN'T be done: I'm saying families + money = weirdness.  The last thing you want is to alienate half your family because they think you "tricked" sweet old Mee-maw out of her property.  People get ideas in their head all the time...

Distant 3rd Cousin-in-law: "Oh granny always said she wanted US to have the house; back in 1997 she said if we liked it we could move in when she died..." 

Of course no one else ever heard that conversation and it probably never happened, but that doesn't stop people from getting ideas in their minds, and ideas (even false ones) are hard to dislodge when they've been dreaming about them for decades and there's money at stake.

Be cautious.