Potential investment-ideal beach property

[Amber Schenck]

Hi everyone,

A friend approached me with information regarding a beachfront property his family has inherited and I would like to help him with options. So I am reaching out to the BP community for advice and or possible investment opportunity for someone.

I do not have all the details as of yet, but what I know is the property sits on a double lot one block from the beach (in a very popular beach town). It is a ranch style home and the only one in the neighborhood that has not been flipped.

His questions were regarding:

-How can the family avoid having to go through an agent and pay a high commission

-He realizes the potential of this property and would like to partner up with an investor. He’s concerned he doesn’t have any leverage on his end. (He is a contractor and currently owns his own business)

-Is that even an option when the inheritance is split between numerous family members? He wants to partner up/develop/ and rent out. However, the other family members want their cut of sale as soon as possible.

-Inheritance tax.Inevitable… best options?

Thank you in advance for those who may be able to share any thoughts!

[Jon Holdman]

For one, unless there was a very large estate involved there will be no inheritance taxes. IIRC "very large" is a bit over $5 million. The "basis" for the property is the fair market value on the date of the death. So, if they have not yet established that value, they should.

How can they avoid real estate commissions on the sale? They cannot. They could sell directly to a wholesaler or investor, but the discount required will be far more than just selling retail and paying the commissions. The best net to the sellers is almost always going to come from getting the property on the MLS and getting a retail buyer. By going with a discount listing agent they may be able to save some money. But if they refuse to pay the buyer's agent's commission then they will end up selling for less. Agents just won't show their property.

This sounds like a vacation rental type property rather than a long term rental. I'm dubious that those actually produce good returns. The rental income may help offset the cost of owning the property. But the expenses are high for such properties. If it is a long term rental, give us the numbers. It is very possible its still a crummy (unprofitable) rental. Most properties are. So, if he wants to be a buy and hold landlord the best option may be to sell and invest the proceeds in good rentals.

I'm confused. Is this just a lot or a house? What's the "develop" angle here?

If the other heirs want out he's going to have to figure out a way to buy their shares from them. Depending on the numbers it might be possible for him to get a loan and buy the place. That leaves him free to do whatever he wants.