Attn: Real estate moguls

[MelBay]

The background: I inherited eight (i) Promissory Notes when my parents passed in 2008. My dad bought these small homes, flipped them, and carried the note. He charged ~8% interest, which is high I know. It was his own little sub-prime mess. If a buyer could get a loan elsewhere at a better rate, he would have taken the cash. None of his buyers could ever qualify for a 'real' mortgage, so this was my dad's retirement plan, and it was a pretty good one at that. He didn't have any tricky financing, 8% was 8% was 8%. Never went up or ballooned or anything.

Believe me, this is not passive income. We work every month to get the house payments out of these people. Calls, letters, threats, listening to their problems, etc. I'd rather have several wisdom teeth pulled each month.

Fast forward to today: One of our homes is now vacant (I could write a book about how that happened). My dad had sold it for $70,000 in 2003, and I'm guessing now it's maybe worth $35,000, as is. The buyer didn't treat it with kid gloves and with the way real estate is now, I'd jump at $35K if I could get it. 2 bedroom, 1 bath, detatched garage, built in the late 40's, it has about 1400 square feet. VERY modest home with good bones.

My husband wants to put about $10,000 in it and sell it for (hopefully) $55,000. I think it's a gamble, and I'm not much of a gambler. We owe nothing on it. If we fixed it up, we'd carry the note because that's where we'll make our money. It needs a new kitchen and bathroom, carpet in the bedrooms, and we're thinking vinyl replacement windows.

Would you fix it up, or sell as is? What would your budget be on a house in this price range? Granted, I'm not going to get Rhodes Scholars to move into this, but everyone needs a place to live. I guess this was my dad's mission in life (in addition to making a comfortable retirement for himself). He really enjoyed it, I find it totally distasteful and frustrating. I'm a Dave Ramsey debt-free devotee, these people aren't. I even offered to pay for all of them to go through Financial Peace University - none of them would .

Keeping my husband on a budget will be a huge challenege - he likes top-of-the-line everything, which is a total waste of $$ for this situation, IMHO. He's semi-retired and could do much of the work.

What would you do? What have you done?

 

[teepeeca]

If, in fact, the "fix-up" work can be done for $10k, then definitely do it. If nothing else, get it "up to par" and either sell it, or rent it. The way the market is right now, renting it might be the better option. I don't know where the property is, but if, after fixing it up (for the $10k) and renting it for $200 per month (renter pay all utilities), you would be making over 20% on your investment.

You definitely DO NOT NEED top of the like "fixen's" --- just good qualilty items, that will last for 5-10 years.

Tony

 

[vacationhopeful]

I remodel stuff all the time (rentals I have owned for years & years). I have (1)rehabbed and sold stuff with a realtor; (2)I have sold stuff without lifting a broom (with a $10 sign on the front fence); (3)I have rehabbed, sign front yard, used a realtor (MLS), sign again which found realtor w/ active buyer & very low commission.

My vote goes to #2. Wished I had done method #2 on both of the others particularly #1.

If you want the mortgage payments as retirement income, you will have to do some remodelling and then sell with holding the mortgage. I am runnning into many, many more tenants who don't have the 20-30% down payments required to get a mortgage (self employed, too much debt to income ratios, etc). You might get a better buyer today holding the mortgage.

As for the project scope, agree to a detail plan first for finish of unit, timeframe, and total costs before picking up hammer or paint brush. Clean and reasonable is a must but top of line is foolish. Use Craigslist to help get stuff.

Remember, if you do this work and it takes 4 months, it would be ready Jan 1 you will get people who have cash from tax returns. Taking 6 months is March 1st and yard must also look good to attract people. Taking 8 months, has buyer looking to move after the school year.

Spending money by using subcontractors might gain you no winter heating bills or limit your overall costs if you can't agree with husband to limit his spending.

 

[Rose Pink]

Just today I was thinking about my FIL's house and the mess it has been to clean it up. DH put in new kitchen cabinents and countertop. The plumber will install the new sink. We just bought a new toilet and vanity for the bathroom--which we will have the plumber install. (DH is handy but just doesn't have the time.) The homeowner's insurance paid for repairs due to water damage and mold that included new vinyl flooring in the kitchen and bath as well as new sheetrock in a basement room and some areas of the main floor. The entire drain system needed to be replaced. Now the electrical isn't working.

These old houses can be a pain if they were not taken care of. FIL didn't and your previous owners did not. Just bringing them up to standard is a lot of work and can be alot of money. I understand how your husband feels. If you are going to do the work, you want to do it right. It is so tempting to want to fix things to your own tastes and standards but it is a waste of money most of the time.

If the house is in an up and coming neighborhood or one going through a revival it could prove wise to fix it up but I'm guessing the neighborhood overall isn't in much better condition than your house.

When you sell to people who can't get a loan from the usual sources, you are going to have problems collecting the mortgage. If the bank isn't willing to carry them there must be a reason. I was thinking about this today before I even read your post. There is a young man who is interested in buying my FIL's house but he wouldn't be able to get a regular mortgage. No way am I going to play banker for him. You already know how hard it is to squeeze money out of these people.

The same goes for renters. I wouldn't want to be a landlord in a low rent district. Some people are great about paying rent but some are not. It can be very difficult to evict a renter. Check into the legal ramifications before you go this route. There is probably a landlord association you can consult with.

The bottom line is that owing a house takes work. If you don't want that burden, dump it. Someone will be glad to pick it up cheaply--either someone who can't afford anything else or someone who wants to flip it. If you don't enjoy renovation, let the flipper do the work.

In the case with my FIL's house, our realtor told us that we could put 10 to 20 thousand into and get the same amount back--in other words, we'd break even and not make any profit for our time and work.

So, if your DH really does have the time and energy and desire, let him have at it but talk to a realtor first to see what you can realistically get for a property in that area. Don't put more into the house than you can get out of it. Your DH may decide it is not worth his time and energy.