Helping out an inexperienced Landlord

[Connor Swalm]

Earlier today I met with a man to look at a rental home which he currently had rented, we talked about his options in selling the home or keeping the home and renting it out. After meeting with him, I decided not to purchase the house, but he is in a tough situation and I wanted him to know the options he has in front of him. Below is the is the email I sent him, what do you think about the options I presented him?

Some background: The house has an ARV of about 50k, and there is a 25K HELOC on the house, where he is only paying the interest on the HELOC. The house is currently rented out, but below market value because the home is in disrepair, and as such, will not attract a full paying tenant. Also, he works in construction and has the knowledge to repair the home completely.

Sean,

I enjoyed meeting with you this morning and thank you for taking the time to show both me and my father your house. We talked about about the different options you have in regards to your property 000 Drury lane, where we discussed the ways you could possibly keep or sell the house. Below are the options we discussed.

1.a) List the house with a realtor:

My father we would be more than happy to list the house for you and get the best price possible. Based upon the current condition of the home, you would most likely end up negotiating a short sale with the bank that owns the HELOC. A short sale is where the bank that owns the debt agrees to take a reduced payment at the sale of the home.

With a short sale you will get out from under the house, but it could affect your credit.

1.b) Fix up the house and then list with a realtor:

If you are able to put in some sweat equity and pay for materials ( I estimate about 12,000 - 15,000 needed in materials to fully repair the home) You can add value to the home and then List with a realtor. I have attached a document that lists the comparable homes in that neighborhood. Most likely, the house will be able to sell for 45 - 50k. After paying off the 25k HELOC, 15K materials cost, and 5K expenses and realtor, your'e looking at making about 0 - 5k. With this option your credit remains unaffect.

2.a) Keep the existing tenant:

Based upon the rental spreadsheet you gave me, I calculated that you have been receiving on average, $500/mo from your existing tenant. I recommend using that money to slowly pay down the HELOC and complete some repairs on the home (if there is money to do so) to keep the home in shape.

2.b) Fix up the home and find a new tenant:

I estimated the rent for a fixed up rental in this neighborhood to be roughly $1,000. You mentioned that currently a house down the street from yours is renting for $1,100. Based upon that, after repairs and upgrades, you will be able to rent the home out for about $1,000/mo.

3.) sell the home to an investor:

If there were no HELOC out on the home, an investor would offer around 20k for the house, however, with a 25k HELOC currently on the property, given an ARV of 50k this house would not be suited for an investor to buy.

Please remember, I am not a realtor and all of this is simply my opinion.

What do you think about the options I Listed him? I tried to think of everything, and I'm sure an investor would not be willing to purchase the home in its current physical and financial situation.