1906 Craftsman Restoration 3bed/2bath - San Francisco Bay Area

[Amanda Coggins]

I want to buy this house but I don't know how to do it with the complications that are involved, or if they outweigh the benefits.  Any advice is appreciated!

BACKGROUND:

I live in the East Bay (Oakland - Grand Lake) area of San Francisco and I've become friendly with my elderly neighbor this past year who is willing to sell his 3bed/2bath 2,500sqft 1906 craftsman, to me.  The house was purchased in the 1970's and used as an artist studio since that time, with a house-sitter living it in as an un-approved subletter.  It has no yard and no parking.  The artist's business went under due to the pandemic and the house-sitter had to move out.  Now, the house sits vacant and needs a lot of renovations to be rentable again in today's market. The house is almost entirely original (electrical, plumbing, wallpaper, windows, etc.) with the exception of a new roof put on last month and it has natural gas forced air for heating.

OWNERS POSITION:

The owner lives far away and is elderly, so trying to find and manage contractors to fix it up during this pandemic has been challenging.  He doesn't want to sell it outright and pay capital gains taxes, and would rather have his daughter inherit the property and then sell it, thereby changing the cost basis and taxes that would be owed.  Currently, the house is in his trust.  It may end up sitting vacant for months/years so he is willing to be very flexible and creative with solutions for me, including seller-financing, rent-to-own, etc.

MY POSITION:

I don't want to waste money on rent.  I would like to buy this house because it has always been a dream of mine to remodel a home.  However, I'm having a hard time figuring out how much the house is worth and how to structure the deal to meet his tax needs.  He consulted with a local real estate agent and they told him there are no comps so they can't estimate the value.  Houses in this neighborhood are typically kept very nice and worth $1M+.  The Zillow estimate is ~$1.3M but that *probably* doesn't take into account the condition of the house, lack of parking, and lack of yard.  He threw out a sales price number of $1M, but I think it might need several hundred thousand dollars of work to be worth that for all I know.  Since this is probably an HGTV flipper's dream opportunity... if there are any comps out there, they were probably sold off-market, so I can't see them online.  I think he would be reasonable and negotiable if I can find the right evidence to support a lower offer.

One reason I need to get the house for less is that I need to be able to rent out some of the rooms to be able to afford the mortgage.  Rent has gone down during covid and single-family home prices have gone up.

QUESTIONS:

How do I figure out what a fair offer is?  

Should I hire an agent to research and see if there are any comps like this out there?  

Should I pay for an appraisal and an inspection to try and estimate the cost of renovations?  Will I end up with 3 totally different numbers?  

Is this a huge waste of my time and money?  

Can I buy this property from him while he is still alive and still allow him to achieve his tax-avoidance goals?

[Todd Rasmussen]

@Amanda Coggins

Lock down the basics with the seller and his daughter (or whoever is going to be handling the estate after his passing). "If I agree to buy this from your estate for $1,000,000 after your passing, can I have control of it starting now?" After that, pay for some time with a CPA and an attorney to figure out the best way to make that happen (that accomplishes both of your goals) Guessing it's along the lines of a master lease agreement and an option to buy contract. Also, make sure you have the capacity to perform to whatever you commit to.

If you are doing this because it's a dream of yours, stop. Objectively follow math to determine if and what opportunities you should be pursuing. That being said, this could be an amazing opportunity or a disaster. Make sure it's the former before you decide it's for you.