Golden egg has been sitting for years. Time to renovate and rent?

Question

My wife and I just came back from her late father's property (5 bed 3 bath 2500 sq ft) in Colorado, it looks like the house from the amityville horror movie on the outside. Inside- a spacious and warm, single family dwelling, fully equipped with top of the line products from the 80s that are fully functional. Retro yet practical.

Inspiration strikes us everytime we visit. It's such a beautiful house that doesn't need much renovation. I estimate 20k in renovations to get it to renting conditions. Its located 20 minutes away from a booming town and after looking for rentals in the area we could potentially generate 3k per month at full occupancy.

The catch- although the 40 acre property and house is owned, it is in a trust. Family members arent interested in anything but selling (Arent in-laws great). They have a neighbor offering 350k for it, but on Zillow its estimated at 550k. An assessor put it at 350 two years ago. We want to keep the property for life so we don't want to transform it in any major way even though the rooms are LARGE (master suite is 18 x 14 plus 3 closets, vanity room and full bathroom)

Were looking for some proper steps to take on the way to renting out the house. Assuming we get blessing from the family, we are thinking of taking the following steps:

Taking out a lien or home remodel loan

House insurance

A deep cleaning

Posting all 5 rooms for rent

Hire property management

Set up exclusive bank account

See how it goes?

Any feedback or questions would be greatly appreciated!!

All the best-

Aaron

Teri Feeney Styers · Answer

@Aaron Reamer several comments. First - forget about Zillow zestimates - they just aren't reliable. There are better ways to estimate current market value. Secondly - you mention construction housing but also the ski area. Worker housing during those winter months may be very attractive and the snow a non-issue. I don't know the market real well; but there is a university and a ski area which usually equals an affordable housing shortage... So yes, put your pen to paper and show the relatives how they are currently earning zero and could be earning something. However, I would approach it as an owner carry buy out - not a rental partnership. Go ahead and request a short term balloon. Lastly, on your list was "house insurance". If this place isn't insured then you need to call an agent today! So risky not to have coverage for a number of reasons...

Aaron Reamer · Answer

I really appreciate all the feedback and advice!! Thank you guys very much! In response - the father of these trustees were left pretty well off, there are 3 more properties worth much more than this property just waiting to be sold and shares to be collected. I think with a well crafted spread sheet and financial chart, we may be able to persuade them. IE if the ROI is 200% after 2 years and then gets allocated annually, boosting our credit and providing a modest income to 5 people. Win-win?

Speculative yes but not overly ambitious after doing the market research. Its near two large ski resorts and is a big game hunters paradise.

Aaron Reamer · Answer

Not an airbnb. Snow usually accumulates 8 - 12 feet in the winter and no one wants to deal with that.. we are thinking long term rental for each room since there is a boom going on in a small town 20 minutes down the road. Big commercial buildings are going up as we type which means construction workers (from out of town) will be looking for rooms to rent. And with that in mind, possibly trading rent for labor or some fair trade agreement for housing.

5 is the magic number! good guess, buying 4/5th of the appraisal is a possibility but we are just starting out and since the property is owned and has a buffer to fund the occasional utility use and taxes, it literally cost 0$ we would like to build some experience in real estate and capital before considering buying it from the rest of the family.

Lynnette E. · Answer

I think that you should take the low price point that the 'others' are willing to sell the place for and offer to buy out their shares at that price.  Have them finance it, and you pay them monthly for so long with a balloon payment, maybe in 5 years.  Record the deed and loan.  Then at the balloon payment point you can get a loan from a bank and pay them off completely.  And any reno would be on your own dime.

That way you get the low buying point, seller financing.  They get some money monthly with a payout in the near future.  And they do not have a rental they do not want.

It will be very hard to rent the property if they want to sell.  They will not want a loan--investing more money when they want the money out of the property.  You will do all the work, and they will whine about every dime you spend.

I have been there, and its hard!

When my mother passed away, I had 11 heirs that wanted rental property sold ASAP to get their shares.  They had spent that money the day my mom died for some of them.  Giving the renter their legal notices, fixing the property to get top $, spending money to fix the houses, escrow, each step was whining as they just wanted money, and I was working, getting nothing but whining for my effort.

The rentals (next door, mirror images) had long term renters--39 and 23 years each, and needed work.  We were offered $190k each as is.  I spent $58k total for both and sold each for $375k, no concessions.  I self managed all the contractors, did tons of work with my then 12 year old kids.  And the ungrateful inheritors just wanting the money NOW!

It been 3 years, and 2 of the inheritors have come back and apologized for how they acted and thanked me for pretty much doubling what they got out of the property, 9 others, nothing but still mad it took so long.  They think I 'held them up' from getting their inheritance.  Oh, and BTW, I had to pay the outstanding bills out of the money that we got, so without the reno, they really would have gotten soooo much less because there were extensive medical bills.  And mom passed at the end of April, they got the last of the money in the first week of January of the next year, 8 months and a week, not that long considering we had to get death certificates in LA, 60 day notice to vacate, escrow for 45 days, and reno time and listing time.  Anyway they did not have a long wait.

Advice:  do not push them into sharing a rental if they do not want to:  they will make your life miserable!

John Teachout · Answer

So are you talking about doing a short term rental such as an Airbnb? Or trying to rent individual rooms to long term renters? Don't understand what your plan is here.

Also, how many players are there in the game? ie, how many family members. If they're considering selling it for $350k and there's 5 people involved, could you buy it for 4/5th of $350K and pay the other family members their share?

Marci Stein · Answer

To me it sounds like those are all the right steps.

Only thing I’d add is to be very thorough in the tenant screening process .