What would YOU do with this property

Question

Here's the scenario:

I have an elderly in-law who owns a home free and clear. It's an older (1951), 3 bdrm, 1 bath, just over 1000sqft single family detached home in my area (Northern CA).

The problem is, a friend of his was smoking in the house and the house burned down. This happened a couple years ago.

The home was insured, so insurance paid him to fix the house. He subsequently hired a contractor, who got the appropriate permit(s), and started work on the house.

In the meantime, my in-law blew/gambled away a good portion of the money that insurance had paid him. To top it off, the city later issued a stop-work order on the house because they "issued the permit in error".

Work was stopped, and - with no money left to finish the repairs - the house has sat partially completed since 2010. It is currently not inhabitable. I have not personally been inside, but I can see that the house is framed and the exterior appears prepped for stucco. I'm told that the interior has no finished walls, plumbing, electrical, etc. So it's a ways from completion.

My in-law has continued to pay the property taxes on the property each year, and they are all currently paid up. I went to the local county assessor's office to see if there were any liens on the property, and I didn't see any. All I saw was that the city's code enforcement had filed the "notice of violation" and stop work order on the property.

I'd like to help my in-law out of this situation, because he is retired with no way to accumulate the money needed to fix the house at this point. So it's just a drain on his finances as it sits.

I called the city's code enforcement to see why a stop work order was issued and what would be needed to get a permit now. I was told that, after the initial work permit was granted, FEMA got involved and notified the city that the property was now considered to be in a special flood zone. Furthermore, due to the amount of work that would be needed, they can require that the house be brought up to current code. In this case, that means the entire house would have to be raised 2-3'. Hence, the reason the city issued the stop work order.

I've never dealt with raising a house or this level of rehab, but - like I said - I'd like to find a way to help my in-law out of this situation.

Some of the options, and pros/cons, I've thought of are:

#1) Have my in-law call one of those "We buy houses in any condition" people and sell him/her the house in an "as is" condition.

PROS: This would involve no effort on my part and my in-law could be done with the house.

CONS: My in-law is not very motivated or good at following up on things and I doubt he would effectively follow-through on selling the house himself. He's elderly and retired and his top priorities seem to just involve gambling and drinking beer. So I'm not sure he would actually take care of getting it done. Plus, I think someone could easily take advantage of him.

#2) I could buy the house from my in-law, and then turn around and sell it to one of those "We buy houses in any condition" people myself (also in an "as is" condition).

PROS: I could make sure the house actually gets sold, and I could potentially make a small profit on the spread between what I buy it for and what I sell it for with very little work on my part.

CONS: This isn't actually my area of expertise. All of the houses I've ever bought have involved a realtor, and I don't know the exact process for how to buy/take control of the house from my in-law. I'm assuming that I just pay him and he grant deeds it to me (or something along those lines). I'm sure I could figure it out, but it would take some research on my part. I'd also have to research what I could realistically sell it for so I know how much to pay my in-law.

#3) I could buy the house from my in-law and then fix it up and sell it.

PROS: I could potentially make a bigger profit.

CONS: I don't know if this is a viable option because I haven't got any bids yet on how much it would cost to fix the house up. (My wife and I just decided to get involved in this problem recently since we saw the situation wasn't getting any better for my in-law and/or he wasn't making any progress on his own.) Obviously, I'd need to know how much it would cost to fix up the house before I seriously consider this option. Comparable homes (not updated/remodeled) on the same street are selling for around $65k-$80k, with one (that is updated/remodeled) just going into escrow for around $137k. That's quite a spread so obviously any ARV would depend on the level of remodel/finish I had done. But taking the lower end of the scale into consideration, there's not a ton of room for profit considering the level of work that is needed.

#4) I could buy the house from my in-law and then fix it up and keep it as a long term rental.

PROS: Currently, all of my experience is with long term buy and hold rentals so this fits better with my existing REI business model. Ball park estimated rent would be $950-$1000, so it could turn out to be a decent rental.

CONS: Kind of the same as with option #3 - i.e. I don't know how much the total repair costs would be so it's hard to effectively evaluate the viability of this option until I do have this info. Also, the house is in a flood zone which is usually something I avoid, primarily because of the much higher insurance costs.

Anyway, those are the ideas I've come up with. But I'd really like to throw it out there to the group, and get the combined wisdom of the BP Mastermind community to see if there's something I didn't think about and/or one options that stands out above the rest.

So, what would YOU do with this property?

Karen Margrave · Answer

What is the market like in the area where you live? Northern California covers ALOT of area and market conditions. If there's any market at all,you can tear down the house, and build a new one. If it's in a lower income area, you might be able to do a manufactured home on a permanent foundation. You could also just list the property as land, with the stipulation that the buyer is responsible for removal of the existing structure, etc. Trying to raise the house, and bring it up to current code would probably be more expensive than starting from scratch.

Account Closed · Answer

Where is option 5? Just hire a real estate agent, put it on the MLS, sell it and be done with it. I don't see how you can make money giving the prices you noted above. For all the troubles and no guarantee for a profit? It's a dicey property to take on in my opinion. Good luck.

Bill Gulley · Answer

I'm aware of the degree of damages type issues, as I mentioned, we have had similar issues. You ought to speak to an attorney who deals in imminent domain issues as to regulatory requirements devaluing or eliminating the use of property, they might buy out the property, if they effectively throw someone out they need to buy it or pay compensation. I know it's been done here. :)

Kyle J. · Answer

Unfortunately they can require the house to be raised since the home is now in a flood zone. If more than a certain percentage of a home is damaged and requires repair, they can require that the home be brought up to the current standard. This isn't the first time I've heard about something like this happening in my local area. There is a whole neighborhood (Natomas) in Sacramento where the same thing happened. And the homes there weren't even that old. Here's the news story on that and one frustrated families adventures similar to mine: FEMA Restrictions Keep Natomas Homeowners From Rebuilding

Bill Gulley · Answer

My above ranting wasn't meant like you'd get damages, just that I'm pretty sure they are over steeping the bounds of an owner occupied home with the owner having the right to make repairs, to code for those areas repaired, but not to the entire home, nor can they make new requirements like raising the house as it is an existing home. That said, it also depends on the extent of damage, totaled, then you have an issue. There seems to be an issue too with the city manipulating this setting him out for the time, which is an issue, contributing to the situation. We have had similar issues here, damaged homes in a flood plain, repairs can't be denied. If it is destroyed, tear it down and start over by code. Can it be sold as-is? Don't think I'd get that involved if the money was gambled away, seems he put himself in that situation, did he lose the money before the city stopped him or after, thinking the money was available then to live on? Just saying an attorney should have been involved long ago and an independent assessment made as to the degree of damages. Sounds like some GS 7 FEMA guy could have been overstepping to apply the regulatory authority. I know they don't get their way all the time. :(

Kyle J. · Answer

Actually he is living in another one of my houses that he's renting from me.

Brian K. · Answer

@Kyle J. what a story, unfortunately some people just don't want the help. Procrastination kills. Where does your in-law currently live now?

Cory Kohut · Answer

No matter what option you go with I would suggest going to https://msc.fema.gov and see if the property is in a flood zone. If it is in a flood zone I would suggest proceeding with caution, if at all. The flood plain regulations changed over the summer and flood insurance is extremely expensive for non-compliant homes. If the house is not built up to flood plain codes any end buyer using traditional financing could be on the hook for flood insurance costs in the $9,000-$10,000 range. From what you described has been done, I believe you would have to raise the structure the 2-3' necessary to get it out of the flood plain. This could be very costly.

Kyle J. · Answer

Hey guys, @Jake Leicht - That is where it was located. Nothing ever happened with it. Talked it over with my in-law who owns it and told him that I'd be willing to do whatever he wanted in order to help him out (i.e. buy it from him and re-sell it, or just help him sell it). However, he couldn't bring himself to get rid of it and opted to just hold onto it even though he can't stay in it and it's just costing him money (he's still paying the property taxes last I checked). Oh well. Can't help everyone.

Jake Leicht · Answer

@Kyle J., its been a while my friend, I hope that all is well. I too want to know what ended up going on with this property. Is/was it located int he country club area over by UOP?