All Forum Posts by: Jacob Elbe

So I have a situation I don't know how to handle or who to speak to about it, but since it has to do with real estate, I thought BP would be a good place to start!

Here's the situation:

My sister-in-law is in serious debt and can no longer afford the payments on her house. Her house is on 10 acres of land that were gifted to her from my father and mother-in-law. The land has been in the family a long time, so they don't want to lose the land to someone outside the family. This is more important to them than making a profit on the sale of the house. Especially since they believe creditors will immediately take whatever profit is made. So the family has asked me to buy it because I'm the only one that might be able to.

Here are some rough numbers:

Sister-in-law owes on mortgage: $95k

Market value: $160k to $200k

How would this sale work? I won't be moving into the property, so is a loan just like a loan on any other investment property where I will have to make a down payment of 20%? If so, I can only do it around $100k because of the cash I have available right now. Or is there a way for me to buy it with no money down since I will have instant equity?

I also don't want to finance it for too high because I still need to be able to rent it out and make positive cash flow. It should rent for $1,200.

My sister-in-law is concerned that their creditors will take them to court for selling below market value. Is that possible? Or is it fine as long as they sell the house for enough to pay off their current mortgage? Would the selling price be considered $100k? Or would it be considered $200k with a gifted down payment? Is it legal for them to sell that far below market value? What tax implications would there be for both of us if the down payment is considered gifted?

Thanks for any help or referrals you all can provide!

So I have a situation I don't know how to handle or who to speak to about it, but since it has to do with real estate, I thought BP would be a good place to start!

Here's the situation:

My sister-in-law is in serious debt and can no longer afford the payments on her house. Her house is on 10 acres of land that were gifted to her from my father and mother-in-law. The land has been in the family a long time, so they don't want to lose the land to someone outside the family. This is more important to them than making a profit on the sale of the house. Especially since they believe creditors will immediately take whatever profit is made. So the family has asked me to buy it because I'm the only one that might be able to.

Here are some rough numbers:

Sister-in-law owes on mortgage: $95k

Market value: $160k to $200k

How would this sale work? I won't be moving into the property, so is a loan just like a loan on any other investment property where I will have to make a down payment of 20%? If so, I can only do it around $100k because of the cash I have available right now. Or is there a way for me to buy it with no money down since I will have instant equity?

I also don't want to finance it for too high because I still need to be able to rent it out and make positive cash flow. It should rent for $1,200.

My sister-in-law is concerned that their creditors will take them to court for selling below market value. Is that possible? Or is it fine as long as they sell the house for enough to pay off their current mortgage? Would the selling price be considered $100k? Or would it be considered $200k with a gifted down payment? Is it legal for them to sell that far below market value? What tax implications would there be for both of us if the down payment is considered gifted?

Thanks for any help or referrals you all can provide!

@James Vermillion Thanks for the warm welcome. I'm a 65F, or Finance Officer.

@Joe G. , my house in MS has been a rental property for two years now and really, I'm not being honest with myself by saying it breaks even!

I bought it originally without any RE knowledge and was hoping to rehab it and make a profit when I moved by selling it. Unfortunately, I bought in 2007 and home prices dropped over the next four years before I moved. So even with all the work I did to the house, I could only sell it for what I bought it for. So we kept it, found some military tenants, had some friends of ours acting as property managers for free, and have only had it vacant for about 2 months in 2 years. In that time, we've had major plumbing issues and other minor maintenance expenses.

I didn't use my VA loan, but used a USDA loan at the time so I paid 0 down and got a 30 year fixed loan at 6.65%. That's another reason I don't make any money on the property, haha. I've looked at refinancing, but now that it's a rental property I will have to pay in 20% equity and the returns just aren't there. It will probably cash flow (maybe), but minimally. The average rent over the last two years has equalled my mortgage payment, but doesn't give any room for expenses. Even a refi, won't give me much space.

So, now the market has recovered a little and I'm hoping to sell it around the time that the current lease ends. I still have very little equity, but with appreciation, as long as I can cover agent commissions and closing costs I'll be happy to sell it. If I can get some cash from the deal, great.

Now that I'm learning more about REI, I definitely plan to turn my future primary residences into rentals, but I'll be much more careful when choosing the properties.

First of all, thank you to everyone that replied! It amazes me how much help is available on this site.

Just to give a better idea of the deal I'm looking at:

Price: $68,000

Rent: $950 (lease already in place, w/ one year rent guarantee)

Total Cash Investment: ~$16,600 (20% down + closing costs)

50% Rule: $950 / 2 = $475 - $290 (mortgage) = $185/month cash flow

Cash-on-Cash Return if appraised at $68,000? 13.4%

My actual projections are higher, but I'm still learning, so I'm sure I'm erring on the profitable side for me! So I thought I'd use the 50% rule to make sure I'm staying conservative in estimates.

If appraised at $63,240 (93% of asking price), then cash invested upfront goes to

$12,648 (20% downpayment) + $3,000 (closing costs) + $4,760 (diff b/w asking price and appraisal) = $20,408

Return drops to: 10.9%

Still not a bad return, but obviously my cash tied up in the investment went up by almost $4,000, for a worse return! @Marco Santarelli , if the increase was only $1k, I'd be more willing to still go forward with it, but not at $4k.

@Chris Clothier , I plan to take your advice and tell the provider that I want the clause removed, but will be willing to hear their argument for the higher price in case the appraisal does come in low.

I've talked to another investor that has purchased from the same provider before and I don't believe he's purposely trying to rip me off, but the clause is definitely built in to protect him from downside risk and not me.

I'll let you all know how it goes!

Hello All!

So I'm still new to REI, but I'm in the process of trying to buy a property through a turn key provider in the Cleveland, OH area. I own one other property, but bought it as my primary residence, so I have no experience with the kind of Purchase Agreement that's involved in the deal. Specifically I have a question about a part of the agreement that talks about the appraisal.

I know the property has been rehabbed and that appraisals often come in below the asking price. I'm okay with that, but I would expect that is the appraisal comes in below the asking price at all, I would have the opportunity to back out of the deal, or the seller would have the option to drop his asking price. In this agreement it says (paraphrased):

If the appraisal comes in at 93% of the asking price or higher, then the purchase agreement is still good. If it comes in at less than 93% of the asking price, then I have the option to back out and get my deposit back, or we can negotiate the selling price.

That seems strange to me because it could mean an extra $4k to $5k in cash I need if I'm locked into the deal and the appraisal comes in at the 93% to 99% area. Is this normal? Should I try to negotiate this out of the purchase agreement? I would be a lot more comfortable with it saying something like:

If the appraisal comes in below the asking price at all, then I have the option to back out or the seller has the option to drop the asking price.

Is that ever the case? Thanks for any help you all can offer!

Hello all!

My name is Jacob and I'm an Air Force officer currently living and working in Europe. I'm from the Northern Virginia area, but am looking to invest wherever I can get the best returns, and not necessarily an area I've lived in before. I currently own one SFR that was my primary residence when I was stationed in Mississippi, but the Air Force decided it was time for me to move and the house turned into a rental property. I've now had two years of renters, but it's really a break even property and I plan to sell it this year.

I'm at a point in life where I have the cash to really start investing and I've been looking at REI for a couple of years now because I believe it's the best road to real wealth. I finally stumbled onto this site a couple of weeks ago and have been reading as much as I can since!

Before I found this site, I came across turn key providers and decided that was the best way for me to start investing in real estate while I still lived overseas, without having to travel back to the US all the time.

So I'm currently working on buying my first property in the Cleveland, OH area. I should actually sign a purchase agreement this week if it all goes well! I'm sure I'll have more posts about that soon, but as this is the Intro forum, I'll leave that for another area.

Long term, I hope to live off of residual income produced from real estate investments. I have a wife and a daughter (only 1 for now) and I want more time to spend with them!

I look forward to getting to know some of you and learning as much as I can along the way!