Purchasing a home in San Jose from a hoarder/cat lady

Rehabbing & House Flipping
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Purchasing a home in San Jose from a hoarder/cat lady

Brandon Tom
Irvine, CA · Member since 2017 · 3 posts · 2 votes

Hello BP community!

Long time listener, but completely new to the forums. I have never done a deal before, but have done tons of reading and listened to about half of the podcasts. This is complex, but I will try to succinctly describe the situation. 

Goal

Help the owner who is my fiancee's stepmom sell the property and make a lot of money for everyone involved. We are open to rehabbing and rent, rehab and sell, complete tear down, whole sale, or anything really.

House information

According to the city the property is a 2 bed 1 bath. The owner has turned the attached garage into a master bedroom and bathroom (Total of 3 bed 2 bath). There is also a detached 2 car garage. The owner mentioned that her parents had the property zoned (10+ years ago) so that the separate detached 2 car garage could also be its own living space.  Not sure if that is true, nor how to verify if that has expired. Lot size is almost 10K, which is rare for San Jose. It was built in the 50's and the roofs on both the main property and the garage are going bad. Water is not running in one of the bathrooms, nor the kitchen. The ceiling above the kitchen shows cracks running diagonally through it. There are over 50 cats living in the home so the place reeks of urine. 

The Owner

She is retired and falling behind on taxes by about 6 months. She wants to move somewhere where she will have 5+ acres, be near a river, not too hot, not too much rain, not too cold, and not dangerous. Ideally the place will cost no more than 250K. She mainly wants to stay in California or Oregon. She says she is unable to pull money out of the house. She is oblivious to the condition of her home and adamantly believes that with about 15K the house would be in good rental condition. 

Finances

The house is completely paid off. Right now between my fiancee and I we have 49K saved up, 28K in IRA, 750 and 790 credit scores. We have a combined income of 150K and live 6 hours away from San Jose, in Orange County. We also have an investor friend who would invest up to 100K and knows hard money lenders who would be interested as well.

Additionally, if we decide to rehab the property, she would need a place to stay which could house all of the cats. I'm sure I left out a lot of relevant information but am willing to answer all questions. Please help us out with any advice you have! 

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y

SAN JOSE no matter were = $$$$$$  just list it get 10 offers and move on..

as for rural 5 acres not to hot not to cold not to rainy you can eliminate Oregon .

Central CA along 101 fits that mold but not sure on prices probably not.

she is going to have to capitulate on something

Lake co CA you can buy a pretty nice place for 250k  but its a tad hot in summer.. does not rain a ton NO FOG  etc.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    SAN JOSE no matter were = $$$$$$  just list it get 10 offers and move on..

    as for rural 5 acres not to hot not to cold not to rainy you can eliminate Oregon .

    Central CA along 101 fits that mold but not sure on prices probably not.

    she is going to have to capitulate on something

    Lake co CA you can buy a pretty nice place for 250k  but its a tad hot in summer.. does not rain a ton NO FOG  etc.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Albert Ng
    Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    8y

    What is your goal? Do you want to only help her sale and move on? or do you also want to make some money in the process?

    0Reply
  • Brandon Tom
    OP
    Irvine, CA · Member since 2017 · 3 posts · 2 votes
    8y

    Thank you for the responses. I've received quite a few private messages and think I might have come across the wrong way. I am not trying to dump this house to the first cash buyer. I know she is sitting on a gold mine and want to get her as much money as I can. However, I realize my funds wont be enough to both rehab the house and also help buy her a home to move into (which would eventually be reimbursed after the sale of her San Jose home). As such I am not completely opposed to partnering if the benefits would outweigh the cost of adding another partner. I am mostly looking for advice on how to get this all done. For example, would it make sense to open up an LLC and make my fiancee co owner of the San Jose home AND the new home? and once the SJ home is sold, pay off the new home and split the profit afterwards? Basically, since we cant really trust step mom with money (because she will spend it on the cats), how can i cover our asses while we are really leveraged out between the rehab and new house? One wrench i just found out on top of all this, the step mom has only officially inherited it a year and a half ago. Thus a sale would result in a huge hit on capital gains. Could a solution be to keep her as the owner for 6 months first and pay her taxes in the meantime? Sorry it's getting late here and this might just sound like a long rant. Thank you for reading.

    1Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    8y
    Depending on the location of this house in San Jose, it should be worth at least 500 k, with 10 k lot. Just list it will have a quick sale. Capital gain wise, some creative deals can be created. Good luck.
    1Reply
  • Albert Ng
    Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    8y
    I think you are making it more complicate than it should be. You can just sale the house on MLS and also buy the house she wants at the same time. If stay another 6 months help save a bunch of tax, then delay everything for 5, 6 months. Yes, you will get a better price if you fix it up nicely. However, unless you stay local and manage the flip yourself, you might lose money if you just hire a general contractor.
    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    8y
    This sounds more like a tear down than a flip. With a 10k lot probably the best return would be to tear down the messy current structure and build a proper 2500 sq ft or larger home. This of course will cost almost $1m and resell for double that depending on the actual location. Put it up for sale you will probably get multiple offers based on the land value alone
    2Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Brandon Tom:

    Thank you for the responses. I've received quite a few private messages and think I might have come across the wrong way. I am not trying to dump this house to the first cash buyer. I know she is sitting on a gold mine and want to get her as much money as I can. However, I realize my funds wont be enough to both rehab the house and also help buy her a home to move into (which would eventually be reimbursed after the sale of her San Jose home). As such I am not completely opposed to partnering if the benefits would outweigh the cost of adding another partner. I am mostly looking for advice on how to get this all done. For example, would it make sense to open up an LLC and make my fiancee co owner of the San Jose home AND the new home? and once the SJ home is sold, pay off the new home and split the profit afterwards? Basically, since we cant really trust step mom with money (because she will spend it on the cats), how can i cover our asses while we are really leveraged out between the rehab and new house? One wrench i just found out on top of all this, the step mom has only officially inherited it a year and a half ago. Thus a sale would result in a huge hit on capital gains. Could a solution be to keep her as the owner for 6 months first and pay her taxes in the meantime? Sorry it's getting late here and this might just sound like a long rant. Thank you for reading.

    It's in sufficiently horrible condition that putting $50k into it will yield >$50k at the sale, same with $75k or $100k, but it doesn't sound like anyone has the capacity to do that.

    Honestly, I think the solution here is just to list it. Some noob "flipper" with more money than brains will overpay and lose their rear, but that's not your problem. A family member of mine was a bad homeowner after her husband passed away a few decades back, but her property was still in MUCH better condition. Nonetheless, the dumb "flipper" with their cute little guru LLC - a year and a half later - still owns it and is still paying carrying costs on a HML at >10%. Last time I drove by the basic demo wasn't even done, and there were a bunch of "cease all work immediately" orders from the city taped up all over the property.

    I get that you're worried about capital gains taxes and all that, but that's like worrying about if you used the turn signal or not while your car is mid-air flying off a bridge into the river below... let's focus on what matters. When your car is flying off of a bridge into a ravine in slow motion, capital gains taxes are NOT your number one concern. 

    List it. That's it. If this family member wanted to optimize, the time to do that was decades ago. They chose not to. Cash in on a noob flipper, pass go, collect your $200, and drink a bottle of champagne. Get this liability and those 50 cats out of your family, and offload it to a dumb noob flipper and their stupid LLC. As soon as possible. You don't want your family members to be the ones that own it when those city "cease all work immediately" orders get posted on it.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    If she inherited it should be a stepped up basis.. so not an issue check with your tax professional.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
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    2Reply
  • Michael Arreola
    Wholesaler · San Jose, CA · Member since 2017 · 29 posts · 10 votes
    8y

    Hello 

    I would speak with a great real estate cpa and some lending officers. Come up with a strategy to be able to borrow from the home using a heloc. Ask your CPA how can you minimize the taxes that have to be paid once the house is sold.  Maybe adding someone's name to the title will help with the Prequalifying factors that are required for certain heloc products. 

    I sent you a pm let me know if you might have any other questions. 

    Mike 

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    Based on the description there is likely no value in trying to renovate. The house is likely worthless and will probably be cheaper to bulldoze.

    What you are trying to do is not practical and over your head. It will sell for the value of the land.The only money that will be made will be for the stepmother. Get what you can for her and move on. She is crazy and not your problem. If it were me I would report her to the SPCA.

    The rest is her problem and maybe her daughter. I would stay as far away from that mess as possible.

    1Reply
  • Marcy Moyer
    Realtor · Mountain View, CA · Member since 2017 · 120 posts · 108 votes
    8y

    Brandon,

    With the information you gave I can not give you a definitive answer but I can tell you some things you can do to help make a decision.

    The first thing you need to do is find out what the zoning is. If you message me the address I can look up the zoning on county records. If the home is not zoned as a duplex, someone could still put an ADU on the property. That someone is not you.

    The next step is to truly determine the condition of the property. There is a difference between a tear down and fixer. If the house qualifies for a loan, ie has appliances, fixtures, heat, and does not look like it is falling down then you can actually get more money than if you advertise it as a tear down.

    If you can get the owner into a new home with her cats and the house is lendable then you can get rid of the cat smell, do minor cosmetic upgrades, stage, and sell it. That will being in the most money and the most offers.

    I just did this for a home that only had about 25 cats living there, but it did stink. The cats were taken to a new home, the painter put a primer on the floor and walls and the after new carpets and paint the smell was gone. In this market plenty of money is made with paint, flooring, appliances and staging. I do this all the time for my probate clients. The administrator of the estate of the cat house was offered 500K for his parent's house. He did not think it was enough but did not have the funds to do anything to the house. I put up 25K in cosmetic upgrades and staging and he accepted an offer for $750K. the estate will pay me back the 25K at close and I get my commission. The son inherits 150K more than he would have and the buyers get a home that needs work, but a neighborhood they love. We all win.

    How you structure getting owner and cats from San Jose to a new home is going to be the part that needs the most thought and probably legal help.

    If the house really is a tear down and not lendable then you can just leave her there and sell for lot value. She will not get as much money but it would be a much easier thing to do. You can then sell it with a rent back period long enough for her to find a new home and move out.

    0Reply
  • Terry Lao
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    6y

    @Brandon Tom

    You are way over your head. You don't have the knowledge. You don't have the money. Owner is never going to be happy. You are trying to help is your first mistake. 

    All the above will result in no one being happy. The expression.........NO GOOD DEED GOES UNPUNISHED, comes to mind.

    0Reply
  • Brandon Tom
    OP
    Irvine, CA · Member since 2017 · 3 posts · 2 votes
    6y

    @Terry Lao thanks for your honest feedback! This thread is 2 years old at this point and admittedly I was way over my head thinking I could do something to help at that time. I have learned a lot and was able to get into my first house hack in Orange County and would be way better suited to take action now (the house is still in the exact same situation, but farther behind on taxes).

    I came across your posts about investing long distance in Vegas and followed you. I'd love to pick your brain and share investing strategies some time.

    0Reply
  • Terry Lao
    Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
    6y

    @Brandon Tom

    I saw that you reach out to me, and by all means, DM (direct message). Can give you some pointers from the Las Vegas market. 

    I took a look at your profile and this thread came up. From just reading this thread, I could predict many issues and no good outcome. It's been two years, and you might want to follow up and make sure a person cannot lose home entirely due to unpaid tax liens. If I remember correctly, if there is equity, whoever buys tax lien needs to give back certain amount of equity. Just cannot take all equity. 

    From experience, the main issue in this thread, is you are thinking with logic, and others have emotion involved. The two don't mix.

    0Reply
  • Sonny Vu
    Flipper/Rehabber · Saratoga, CA · Member since 2015 · 49 posts · 16 votes
    6y

    I don't agree with the negativity that you got from the recent response on this post. It was all criticism with no constructiveness. You have admitted that you are inexperienced and this was a daunting prospect but at least the other responses gave you options and advice. And there is nothing wrong with mutually benefitting while also trying to help someone who is in distress. Good luck bro!

    0Reply
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