How to help family - need ideas

Question

Seeking ideas about how I could make this work for me and help my family at the same time. I'll try to be succinct. Three cousins of mine live together in a house they inherited from their late mother (my aunt.) Market value is ~$150k. No mortgage, but they are almost three years behind on property taxes. They currently owe almost $13k in property taxes for 2016, 2017 & 2018.  A foreclosure hearing is scheduled for November, and they are freaking out. They will never have the money to pay the back taxes, nor will they be able to keep up with future property taxes. If they deed the house to me in exchange for my paying the back taxes and paying each year's taxes, how can I work this to my advantage?  On the surface, it appears to be an opportunity to get a $150k house for $13k. But, I don't want to make them leave the house. So how can I work something out that allows them to continue living in the house? It would rent for ~$1,500/month in the open market, but they cannot afford anything close to that rent amount. They are not druggies or anything like that, just single females with tiny incomes and no prospects. Might I get the house qualified for Section 8, get one or more of them qualified to receive Section 8 assistance, and that could supplement their inability to pay market rent? I'm trying to figure out a way for them to continue living in the house without the taxes & insurance eating up all my equity. Sorry if this is confusing.

NA NA · Answer

Sell the house and split the proceeds between the owners.

You walk away.  Thats the way to help out.  Your way seems shady.   For $13,000 you get a free n clear home?   Are the cousins uneducated as to what equity is?

Clifford Paul · Answer

Buy the house for the back taxes $13k. Closing cost will be very little. Take out a HELOC on equity recover your invested funds. Take the rest and buy a cash flowing rental then use the cash to pay for taxes and upkeep on 1st house.

Justin Kane · Answer

@Clifford Paul is on to something, if you do not want them to be tenants on a lease agreement and charge them each month then use the equity to invest in a cashflowing multi to help you offset the cost of this property so they can live for free, but with firm rules on how they treat and take care of the property. otherwise just charge them and put them on a proper lease

Andrea Miller · Answer

Thank you to all who have commented. As I said in my post, I do not want to evict them. But they cannot pay market rent and will lose the house to the taxing entity in November. So unless someone steps in (such as myself,) they will lose the equity AND be homeless. My request for ideas stemmed from a desire to make a sound business decision but somehow allow them to continue residing in the house. The HELOC -then additional cash flow property is something I’d consider. I’ve been learning as much as I can about BRRR’ing, so the funds from a HELOC would allow me to explore that option with another property. I already own a few props that cash flow nicely, but I have no experience with BRRR’ing (yet.)

Beau Fannon · Answer

This is a valid strategy for an experienced real estate person with good credit and the income to carry the debt.  It may be more than the OP can handle considering the situation.  Picking up two properties in quick succession can be overwhelming.

Khanesia Washington · Answer

You could purchase at tax value or have them sale property altogether by wholesaling to an investor. Do you know if any problems preexist on the property. Seems like your cousins and you could benefit from wholesaling unless you are interested in being a landlord

Bruce Lynn · Answer

Are any of them over 62?  If so maybe they could do a reverse mortgage.....would allow them to live there until they pass with some conditions.

Randy E. · Answer

I understand your situation.  While it may seem that you are taking advantage of your cousins' situation, it's not taking too much advantage because while you're helping yourself, you are also helping them in a sense.  But not as much as possible.  Let's look at your two main options...

You could help them sell the house at a quick sell price of $120K.  They'll each pocket $35K after expenses.  They'll each pay a little personal debt, each buy a car, spend like they've never had a chance to before, and be broke and nearly homeless by the end of the year.

Or you could buy the house for $13K and allow them rent from you.  The reality of Section 8 in most areas is that the waiting list is so long that unless one of them is already on a waiting list, it will be 2-7 years before they advance to the head of the line and get a voucher.  If they can't each pay $110/month toward the property taxes, they won't each be able to pay you $200-$400/month for rent until the voucher comes through.  Also, Section 8 probably won't give them a group voucher for 3 adults and multiple children -- and even if they would, the house would need 6+ bedrooms to qualify.  Sure, you could try to game the system and not tell Section 8 everything, but if they ever found out, and if your cousins told that you were in on the scheme, the repercussions for you could be severe.  Section 8 might demand all the back rent for a year from the landlord, that's you, not your cousins.

There is no middle easy ground here.  If you're close to your cousins and like them, I would help them sell for as much as they can get, and let them keep all of it.  You said you already have multiple rental properties that cash flow.  You're light years ahead of them financially.  No need to take what belongs to family.  If they blow the money and are broke in 12 months, well at least they had what is likely a once in a lifetime (for them) experience.  You have to accept that sometimes, family and friends are going to not make the same smart decisions as you.  But you can help make sure they get as much as they are supposed to get and it won't even cost you anything but a little time to talk them through the process.  That's what family does.

Theresa Harris · Answer

@Andrea Miller If there are three adult children living in the home and it is mortgage free, why can they not afford to pay the property taxes?  that is the first question.  Property taxes seem to be just over $4K per year, so $1.3K a person or just over $100 a month.

@Jan Brady has a good suggestion-you pay the taxes on the condition they sell and you split the profits. They will likely complain about splitting it 4 ways as you will walk away with a lot based on 'only putting in $13K'. Otherwise offer to buy it (I personally couldn't bring myself to buy it for only $13K if it is worth more than that and family are living in it) and either rent it (you could rent it to them, but that is a VERY BAD idea in my mind as they clearly can't handle money and probably own't pay rent leading to bigger problems) or rent it to some else...or sell it.

As an aside, 3 single people who are working (even with low incomes) and living together essentially rent free should have money left at the end of the month.

Thomas S. · Answer

You cannot successfully operate a business built on a foundation based on charity. If you own the property and allow them to live there it will be a money pit.

How much rent can they collectively afford. Figure expenses will be $700 per month add to that your monthly cost to liquidate the equity. Is it possible for you to break even.  If not don't waste your time trying. Keep in mind that if it works going forward they will not likely live there for ever or you may decide to sell in the future. You need to insure they have no equity or ownership in the property going forward. You will need 100% ownership/control.

How to help family - need ideas

Most Popular Reply