Can I help my Mom by buying her house?

Question

I need help and ideas as a new investor and hoping to get good sound advice from a seasoned and trusted investor, preferably someone familiar with the South Florida market or general advice.

My Mother is looking to me for answers to a dilemma that my sisters and I are struggling to figure what to do with our childhood home built in 1988.

After Hurricane Harvey, Mom took advantage of Florida’s Hardest Hit Home Remodification program. She owes the bank $280,000 and Zillow Zestimate has the home valued at $560,000. I estimate it’ll need roughly $100,000 in repairs.  We would all love to keep the home since our late Father built it and it’s in an excellent location and home prices are rising so we’d ideally keep it as an investment and Airbnb it for cash flow.  At 80, she doesn’t have money to fix it up so she wants to sell as is. Our neighbor wants to buy the house for their children but is lowballing us which is understandable for after market valuation.

Without going into much detail, I just bought a house 2 years ago and my sisters and I also got Mom a smaller place in Houston Texas where we all reside. So now my likely options that I am looking into include:

1. Somehow acquiring the property to fix it up to Rent thereby keeping it as an asset to jumpstart my portfolio investing journey?

2. Maybe something like a Cash out Refi, then pay the bank back, use the rest to remodel the house to sell for $680k ARV or keep to Airbnb

3. Sell as is, give bank money back and take a loss and just be done with it (Our least favorite option).

4. Is a Private Lender an option for me to Buy and Hold?

I’ve read so many books in the last two years as well as watched vids on BP and I may be confusing different concepts from learning so much but I’m still new and need to jump in the deep end so I’m coming to the community in order to make an informed decision.  I know which way I’m leaning but if anyone has some other creative ideas or something I may not have thought of, I’d love to hear them.

Thanks in advance and best regards,

O.T. Menson

Theresa Harris · Answer

If you are all in Texas, who would take care of the BnB-it is a lot of work.  I'd cross that off your list.

As you don't like option 3, leave it as a last resort.  Get your name put on the title and assuming you have $100K or she can get a loan.  I'd try that option first and then consider your options: rent or sell.  This assumes you will get your money back (ie if you put in $100K, you should be getting more than that out or it isn't worth it).  Before thinking about renting, how much does it cost to keep the house (taxes, vacancies, mortgage, management, repairs, etc) and what would it rent for?  Then look at the numbers and decide.  If no one from your family is living there or will be in the future, does it make sense to keep it?

Raymond J. Rodrigues · Answer

@Oddmund T. do not wholesale your house.

Kevin Paulk · Answer

@Oddmund T. Keep the house, and in addition to exploring a hard money lender. Carve a day out  and try and call as many local, regional and state banks in FL as possible. Discuss what you are looking for, sit back and listen. Now! It won't be easy. You are going to get a ton of rejections but one bank will play ball.

Also explore private money, you mentioned sisters. See if everybody is onboard with keeping the  house and if so discuss how everybody can contribute a certain amount to cover the repairs. Follow that discuss with how everybody would recoup there money and get it in writing.

Oddmund T. · Answer

@Turner Wright, very informative. I love all your excellent suggestions and will definitely start working on some of them that apply. I really appreciate your detailed knowledge and am determined to shed my fear of the unknown. By by next few years, I WILL have more experience and properties and will be willing to also pay it forward by offering sound advice to newbies. Thank you again and hope to connect with you somewhere here in Houston.

Rick Pozos · Answer

Sorry @Oddmund T. I get a little nervous when there is no profile filled out and things dont sound right.

I would say the best way to help out mom would be to wholesale the house for 320k maybe 350k for her. If you are working full time, you probably dont want to do a rehab long distance. That would give mom some quick cash with minimal work if ARV is about 550k to650k.

If you are doing this to help mom, help mom, not yourself. I am sure that she has been a great mom and this is your payment to her. Be selfless in what you do for the ones you love.

Turner Wright · Answer

It sounds to me like you and your family really want to keep this house, and why not?  If your estimate is correct your mom has 50% equity in the house.  It's in Florida and near the beach, which will make a great short-term rental and source of cash flow.  Plus, the family can use it like you mentioned.  These are all positive reasons why investing in the home is a great idea.  Honestly, without knowing anything else about the home and where it is at, I don't see any reasons not to invest in it.

You might consider placing this home in a revocable Trust or LLC, especially if you plan to short-term rent it out.  A revocable Trust will help avoid the costly probate process while giving the Trustee full control of the assets, like the home.  And, an LLC separates your personal assets from your business assets and protects you in legal disputes. If you leave the home in your mother's name, I suggest you look into the family Trust, or revocable Trust.  If you plan to take over the deed of the home, then I suggest you look into placing it into an LLC.

As far as investing in the home, you will definitely want a reliable general contractor.  You want someone with the knowledge and experience to tackle the projects you mentioned the home needing.  And, there seems to be room in the home's equity to allow for a comprehensive rehab.  But, since you plan to short-term rent it out and use for family use, it really doesn't matter how much equity is left after a rehab in the short-term, does it?  You want this house more for sentimental value, right?  Luckily, you can keep the home for sentimental value and let it pay for itself as a short-term rental.

Moving forward, however, you need to approach buying investment properties from a business point of view.  Either the numbers work, or they don't.  I suggest you contact a realtor or someone with access to MLS and run comps on properties similar to your mom's in the immediate neighborhood, which have sold in the last 3-6 months to get a more accurate marketable value.  Don't rely on Zestimates.  Then, I would reach out to a general contractor to give you an estimate of what it would cost to rehab the home.  Get a range estimate--from bare minimum/rental ready to full-scale remodel.  You can find these people in your local real estate investing clubs and organizations.

Lastly, work the numbers and decide how you are going to fund the project.  And, do you plan to purchase the home from your mother?  Talk to private-money lenders who specialize in real estate investments and ask what they have to offer.  You shouldn't have any problems finding a private-money lender to loan you 85% of the homes ARV, which in this case may cover more than the balance owed on the mortgage.  Some lenders will even fund 100% of the rehab up to the maximum amount they will loan you.

You have a lot to think about and a lot of work before you.  I wish you luck!

Marian Smith · Answer

@Oddmund T.  Your mother can refinance into a loan product that includes a rehab.  But in getting a new loan you are eliminating one advantage of keeping the home as an investment.  Free money.  Another advantage is not paying fees to sell.  A third advantage is if the fix up costs create more market value than the cost to complete such fixes....realtors use a survey by the American asso of remodelers that shows zero payback on almost every remodel project.  But often a light rehab will make a property significantly more valuable as most buyers want/must have move in ready.  If you could rehab for 100k to add 100k in value, you'd be working for free...there is a lot of work unless you hire a gc 101% trustworthy...for the opportunity to hold the property, be responsible for loan, taxes, insurance and upkeep and take the risk of another hurricane (or fire or other low probability but very expensive incident) or low occupancy and negative cashflow or partners (siblings) not playing fair or wanting out or even you wanting out in a down market with only 20% equity and no buyers.  If you are ready for that, explore the rehab loan products (might be a decent deal for you as you'd have to hire a gc anyway not being local, so 20% more costly but thats just business.) in your name, you and your siblings names or your mothers.  Interest rates are crazy low.

Aaron K. · Answer

@Oddmund T. from what you're describing it really sounds like you want to keep the home for sentimental reasons rather than an investment.  What needs to be repaired that you think would cost $100k?  Most $100k rehabs are where the house is nearly a total gut job.  I'm not familiar with the program, but wasn't Harvey in Houston not Florida?  Are there any residency restrictions tied to using funds from the program?  This doesn't seem like it would make a good long term rental, but might be okay as a short term rental when we get through Covid.

Oddmund T. · Answer

@Kevin Paulk

Thanks for the great ideas. I’m so glad I came here for advice. Lots of good stuff in the BP community. Appreciate it.

Jerel Ehlert · Answer

If at all possible, I would buy it from your mom w/ hard/private money, then rehab/keep for rental or flip. If you keep, find a BnB property manager or regular property manager. Even then visit the property 2x per year. If you can't, you will be better off flipping.

Depending on your mom's situation, the sell of the property might affect her Medicare because there are income guidelines.

Can I help my Mom by buying her house?

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