Author Topic: Noobs Buying Fixer-Upper House from Mother-in-Law  (Read 4255 times)

lemondirgopie

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Noobs Buying Fixer-Upper House from Mother-in-Law
« on: June 07, 2015, 01:23:51 PM »
My husband and I will be moving to a different city at the end of July, from Greenville, NC to Durham, NC. We'll be moving into my mother-in-law's house (that is currently unoccupied) with the goal of fixing it up and eventually renting it out. Currently we're looking at about a year period before we buy it so that we can save up enough funds for a down payment. The house needs some major repairs, like a roof repair, new flooring (and possibly subflooring) throughout, fence repair, deck repair, new exterior doors, minor siding repair, and a few appliances that need replacing. This would be a our first house we've ever bought and while it's intimidating, we are so excited to start repairs.

Houses in the area are going for around $120,000, though we haven't gotten the house appraised/inspected and we weren't sure how much the repairs would effect the value of the home. Ideally we want to follow Afford Anything's 1% Rule (http://affordanything.com/2012/01/25/income-property/), which means if it's appraised at the value of surrounding lots we may not be able to rent it out and make a profit.

The house is a 3 bedroom 2 bath, about 1400 sq ft.

Can anyone see any obvious flaws in this plan? I've read that buying houses from family members can be a little bit more difficult. We are also total noobs at this whole home buying thing, so if you feel you need to lay out the basics, please do so!

sammybiker

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #1 on: June 07, 2015, 06:01:47 PM »
All that comes to mind is make sure you have a very explicit contract before sinking funds and labor into a home that you don't have the title on. 

That said, depending on your negotiated price, it seems like you might have a good rental on your hands after repairing it yourself.

Drifterrider

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #2 on: June 08, 2015, 07:21:44 AM »
So, you will be living in and renovating a house you do not own.  Is that correct?


CashFlowDiaries

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #3 on: June 08, 2015, 10:13:31 AM »
Hey Lemon you are leaving out the most important part for anyone to be able to tell you if its a good idea or not.

How much are you going to purchase the house for?  120k?

How much money are you going to put into the rehab?

How much is it going to rent for?

lemondirgopie

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #4 on: June 08, 2015, 10:39:34 AM »
Yes, we'll be living in the house and working on it before we own it. She is fully aware that we will be renovating the house and encourages us to do so. It's in a place right now where even if she were to sell to someone else she would need to fix them before she did so. Right now the agreement is that we'll be paying our "rent" with repairs (we're allotting $500/month), though that may change when we get closer to the move-in date. It makes me a little nervous that it may create resentment that she's still paying the mortgage, but we'll see.

Question: Would it be wise to get an appraisal/inspection before we even start repairs, or should we wait until we're closer to the date that we would buy? If feel like a lot is riding on how much we'll be able to buy the house for and until then it's unsure as to whether or not we'll go through with the buy. Would that possibly screw her over on a lower price?

To make matters a little bit more complicated, she bought this house about 20 years ago for around $100,000. She still owes around $85,000 on it. I'm not totally sure why this is, but from what I understand it has to do with her, well, lack of mustachianism. This is one of the reasons that she wants to sell the house, mostly to get rid of it.

CasFlowDiaries: We don't know how much we're going to purchase the house for, since we don't know how much the repairs factor in. I guess my question above goes into that. For cost of renovations, we have to talk to the neighbor that is currently helping her do some repairs to get a rough estimate. The roof will probably be the biggest expense. For rent, we're thinking $1200/month, from looking on Zillow and surrounding rent prices. Based off of that rent price we'll need to purchase the house for less than $120k to make a profit.

CommonCents

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #5 on: June 08, 2015, 12:06:05 PM »
I'd get an estimate now, before you start fixing it up and have an agreement in place to buy it (even if the payment happens a year from now), before you start sinking money into it.  What happens if after you've sunk money into it she changes her mind or disagrees on the purchase price?  Your recourse is limited and could cause bad blood.  Better to iron the details out in advance when either party can easily back out if they don't like the terms.

How will you save up to buy if you are spending your money on fixing it up?

theoverlook

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #6 on: June 08, 2015, 12:44:39 PM »
Definitely work out the price in advance - prior to moving in - and have everything in writing, signed by all parties!  This isn't a situation to work out on the fly, in my opinion.

Bob W

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #7 on: June 08, 2015, 12:53:58 PM »
I smell trouble all the way up here in Missouri.

The roof will be a years rent alone.   Just try replacing subfloor while living there!   Bad idea in general in my opinion.   Now if she is giving you a super deal on it that is one thing.   But it sounds like she has a mortgage (how much?)  It is currently vacant probably because she couldn't rent it in present condition.   

Make sure everything is laid out and signed prior to any commitment.   Also make sure you are getting a heck of a deal on it.   

Mother in Law deals are not always the best deal. 

BlueHouse

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #8 on: June 08, 2015, 02:29:08 PM »
Can you do a seller-financed sale (for at least part of the mortgage)?  Buy it now for the price that a fixer-upper would cost so it's out of her hands and into yours.  That way you can make payments to her until that portion (a second mortgage) is paid off. 
The main thing is that you need to have a very clear written agreement going into this arrangement, otherwise, trouble is extremely likely.  I suggest doing the sale now so that there are no hard feelings about wanting to get everything in writing. 
There's something about your post that makes me think part of you doesn't want confrontation, so you may be willing to let the tough conversations wait.  That would be a huge mistake -- make sure everyone is on board and agrees with all matters before any work is done - that way you avoid hurt feelings and animosity later. 

lakemom

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #9 on: June 09, 2015, 05:46:54 AM »
IMO what you need to do with your MIL is a lease/option.  Where you rent the house for a period of time (1 year or more if need be...that's up to you) with the option to purchase at $XXXXX at the end of the option period.  Now, a good attorney can put all the verbiage in a contract to protect you from losing your fix-up money in the event SHE chooses not to follow through with the option.  If you choose not to exercise the option you would lose all the monies used to fix up the house.  That said, just based on your description and even providing your own labor (DIY) 6k is not going to be enough to do all the repairs you listed.  A new roof alone will run 3K+ depending on square footage if you are talking new shingles.  If you need to replace the sheeting (plywood) it will run more.  Also, is the house safe to just move in and live in it?  Or will some of the repairs need to be made to make the house habitable?  And, how long has it sat empty?  The longer it sits the more work that grows from the neglect.  I would not go one step further along this road until I had paid for both an appraisal as-is AND a thorough house inspection with a very experienced inspector to find out what the real scope of work involved is going to be.  Those two items will run you in the neighborhood of $3-500 each but are an investment in both education and a safeguard against future surprises.

Drifterrider

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #10 on: June 09, 2015, 06:15:29 AM »
Consider:

Your title says "buying" a fixer but in reality you are not buying.  You are trading rent for labor and materials.  IF that is an acceptable deal for you, and IF your MIL were to sell to someone else and IF you would not have any heartburn, then go for it.  You trade work for rent now.  That is the deal.

Before you buy this house (or any house) you need to know the neighborhood in Durham.  It is growing, shrinking or is the "creep" taking over?  Talk with a local realtor and several local property managers.  See what is for rent in that area and how much rent you can get.  I am familiar with the Goldsboro area but not Durham.  You need sales comparables and rent averages.

Are you thinking of buying to help out MIL?   Or to rent, or to live in.  Determine first what is your goal.

Expensive items:  HVAC, roof, wood rot/termite damage, foundation, windows.  Lesser expensive items:  flooring, appliances, paint, blinds or curtains, bathroom sinks and toilets.  (all depending on your skill level).

What is the true state of the house and what permits will you be required to pull from the city? (each town in NC has different requirements). 

If it were me, I would make an unbiased unemotional inspection of the house listing everything that is wrong.  Then determine what it would take to repair it.  No guesses; get real numbers.

Then be honest with yourself as to your level of proficiency in making repairs/improvements.  Are you REALLY handy or not?

Then, run the numbers and make a decision you can live with.  Good luck.

The Money Monk

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #11 on: June 09, 2015, 09:18:42 AM »
There's no way to know whether this is a good deal financially without having more of the numbers, but every commenter has agreed on one thing so far - GET IT IN WRITING!

If you do not there is a 90 % chance you will regret it.

If you think that the MIL will balk at wanting to get it in writing, then there is a 100% chance that you will regret it if you don't.


Kagey

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Re: Noobs Buying Fixer-Upper House from Mother-in-Law
« Reply #12 on: June 09, 2015, 12:16:55 PM »
There's no way to know whether this is a good deal financially without having more of the numbers, but every commenter has agreed on one thing so far - GET IT IN WRITING!

If you do not there is a 90 % chance you will regret it.

If you think that the MIL will balk at wanting to get it in writing, then there is a 100% chance that you will regret it if you don't.

Everyone is emphasizing getting things in writing, get real estimates of repairs up front. I really hope you heed that advice!

I would also say, do a rent survey figure out what comparable houses are renting for, rather than relying on a guess / estimate.