House Hack Reality Check Please

[Eliza Greenwood]

The Goal: My sister and I have a property tied up with the (possibly harebrained) plan to clean, paint, carpet, create an unpermitted “flag lot” with fencing, and fix a plumbing issue (10k), place tenants ($1,350/month.) At this point we should be able to attract quality working-class tenants who will really value being in this neighborhood. Then we will refi 48k out to purchase a small house on wheels to place in the "flag lot” where 75 YO Mom would be delighted to live. (She prefers a small house, has minimal income and 50k in savings)

The Deal: Owner carry for 135k, with 28k down @5% with a balloon in 15. Without issues, the value would be 220k. Lot is worth 100k. Highest and best would be tear-down to build triplex but not for as long as Mom lives there.

The Issues: A) It was built in the 20’s with pier and beam foundation and essentially no crawlspace. Repairing the foundation would cost 70k. But we were advised that the foundation is essentially sound, as-is. B) Aside from the immediate plumbing repairs, it’s got old galvanized pipes that will likely need attention in time with the only access being through the floors.

The Risks as we see them: 1) City forces tiny house removal. 2) Ongoing repairs to galvanized pipes with no crawlspace end up costing more than we have projected.

16 years ago, my sister bought a different “tear down” house with similar issues and it cash flows beautifully. Was she just lucky? Looking for input on Issues and Risks – do you have experience with a similar situation?