@Paul Ellington I agree with what you, @Heather Skowronsky & @Sudhanshu Singha have recommended - that my parents are better off selling to a third party and attempting to get market value for the property.
The X-Factor in all of these shenanigans is emotion/fear. They have deep emotion tied to the property, they view it as their dream home. They also have 4 of their own horses and 4 from the rest of the family.
Long story short, the fear of losing their horses, emotional attachment to the property and the belief that this property is what keeps the family together (regardless of how true it is) is very real to them.
I have walked my parents through all of their finances for several months now. Talked them through what it would look like to stay in the property, sell it to family (me) or sell it to a third party. Bottom line is that they do not have any money to put into the property to get it ready to sell. It needs new floors, new paint, new counters (cosmetic upgrades/rehab) the driveway to the barn needs redone as it has eroded, bridges across creek are 15yrs old and need replaced. Small things like this make them believe they wont get market value if the sell. Couple this with the urgency of an impending $35k tax bill in July (i have coached them on payment plans with the IRS) make it so that if they sell to a third party the would just rather go for a cash buyer who has offered them $580k.
The options then are these if they are unwilling to put it on the market:
1) stay and refinance
- they dont have the credit or income to qualify for a refinance, they have tried and were denied.
2) they sell for $580k
- if they do this, they will receive about 200k after paying their current mortgage off.
- the issue is now they either would have to rent or buy.
Rent:
They cant rent because they have 2 Great Danes and the vast majorty of landlords would like not support the idea of two small horses living in the house.
Buy:
They would have 200k ($165k after paying their tax bill). Market value for homes in (or around) Loudoun County VA hover around 400k (you could get something cheaper if you move towards winchester/front royal, or go across the river to Charlestown WV. The issue with this is multifaceted:
1) my mother works in Chantilly and is 60yrs old. They could move further, but she would then have to quit her job (which I have recommended), or she would drive 1hr+ each way to work. For her health I would really prefer this didnt happen.
2) regardless of where they buy, the more money they use for their down payment, that leaves less in reserves...basic maths. If they buy a 400k property at 20% down, thats 80k down plus closing costs. (Conservatively $85k). That leaves $80k leftover after acquiring their house, no assets to their name, around $1900 PITI, and no property for their horses - meaning they will either need to sell their horses (break my mother’s heart) or pay board for their horses which generally costs between $400-$700per horse.
^ this plan could work. I explained to them how they could try to move a little further out of the city where things are in the high $300k range and maybe get a finished basement and rent that out (househack), but they are clear that they do not want to be responsible for tenants if they have to sell. I have explained how we could rent a large horse boarding facility and #HORSEhack to offset the costs of keeping the horses, but there is push back on that front too.
Long story short, I am currently under contract on my parents house.
I am offering $460k, after calling 20 lenders and making a spreadsheet with all of their responses, I found a quality lender who is knowledgeable about investing and has no problem working with property’s zoned Aggricultural with 10+ acres (more of an obstacle than I anticipated). I am set to close in July, my PITI will be about $2800/mo. I will rent the main floor and upstairs to my parents for $1500/mo. Finish the basement into a 1-2bedroom apartment with separate entrance (probably called an in-laws sweet, but you get the point). Then rent the basement for $1099/mo initially and gradually walk that up over time. This puts me at $2600/mo income which will be offset by board coming in through the barn. My sister and brother currently pay my parents $200/horse for board, I plan to continue this which will get me another $800/mo to offset the property.
All said and done, I will bring $24k to closing on a 3% down conventional loan. Since I have so much equity starting out, my lender will assist me to not have any PMI. My parents owe $390k, I give them $460, now they have 70k after paying their mortgage. $35k tax bill. Now they have $35k. $20k for renovating the basement and getting it rented out.
Parents Benefit:
After all of that, they have gained $15k cash, lowered their monthly payment from $3700/mo plus utilities to only $1500/mo everything included and they are debt free and get to stay in the house. They also get to keep all of their horses and dont have to stress about uprooting their lives.
My benefit:
After all of that, I am out of pocket $24k that I was set to deploy for a house hack anyways. I now have roughly $200k equity in a market that is set to drastically appreciate over time. I have $2800PITI but $3400 income from that asset. I get to live there for 1 year and save money on rent elsewhere (probably another $1000 in savings). Plus I get the satisfaction of seeing my parents smile and feel like everything is going to be okay for the first time in a long time.
Note: my girlfriend is a trooper. We have dated for around 3 years now. She and I moved in together last September to save money as she had a work for living situation setup in the horse industry. She is now set to split the workload with a friend and they will movein together (and live for free) while I fulfill my 1-year occupancy requirement at my parents house (where I will also live for free).
Thank you all for your insight and support. I will do another update in a couple months after I have completed closing the deal and get the basement renovated.
Billy
