Need help on family home

[Neecy]

Background: My parents have two paid off homes - one in Florida (built in 1980s), the other in Illinois (built in 1957). The home in Florida was always intended to be their "retirement" home. They permanently moved into that home about 6-7 years ago. Over those years, my siblings (sister for 5 yrs and brother the last 1 -1.5 yrs) lived in the home in Illinois. My parents do not have a pension and have dwindled down their modest nest egg ($300-400k) from updating their house in Florida and day-to-day living. They are both approaching their 75th birthday in OK health - able to drive around, etc...My sister practically trashed the house and my brother is tired of living there. I think it is time for him to move on since he doesn't have the funds to properly update the house. It needs approximately $100k in renovations. Our neighbor's house, which is two houses down and very similar to ours, sold for $200k "as is." The neighbors passed away and the house was in severe disrepair. Investors bought it and put in about $100k in renovations and sold it for $400k a couple months ago.

Dilemma - My stats: I have approximately $675k in retirement savings and $30k in cash at 47 yrs old. I'm eligible for an O-5 military pension in April 2020, but will stay on active duty until 2022. I'm single with no kids. I make about $160k a year. I purchased a house for $470k two years ago and my mortgage is currently $415k (paying $500 extra a month). I have a $24k car note (yes, I know it is bad!). I sold a rental property a year ago with $70k profit and used it to pay for 1 yr graduate school, home renovations, and savings. I liked having an additional income stream, especially the older I get. I would like to secure a loan for $200k to buy the house from my parents, but would like to use $100k for the renovations. I really want to keep the house in the family because it is in Evanston, IL - practically 5 blocks from the beach, 1 block from the train, very close to Chicago and Northwestern University. The taxes are ridiculous - $8-10k per year for 1,025 ft house (2,000 sq ft w/basement). Even though my brother pays rent, the property taxes, insurance, his utilities (his rent does not cover everything) are a strain on their resources. With improvements, I'm sure the taxes would increase as well. However, I would perhaps pull $40k from my primary house or Roth (it has $160k). I want to Airbnb/VRBO the house or lease it. My parents would get an influx of cash and keep their asset in the family. Or recommend to my parents to sell it to investors for $200k "as is." Help!

TLDR: Should my parents sell their house "as is" to flippers or should I buy it from them?

 

[pb4uski]

IMO bad idea. Your net worth is currently ~$736k and you want to invest 40% of what you have worked a lifetime to accumulate into a 1,025 sf/$300k property that has ridiculous property taxes for nostalgia's sake.

Frame it another way... say your parent's didn't own the home... would you be interested in investing $300k in a rental property in Evanston, IL with a nice location 700 miles from where you live? Let's say it was a $300k property in a great location just west of Nashville? In short, I think it would be foolish to invest in a rental property so far from where you live (though I'll admit that I'm not keen on residential real estate to begin with).

Help your parents and siblings sell the property "as is" to a flipper for $200k and add that $200k to your parent's nestegg for their benefit... meanwhile, your brother needs to man up and take responsibility for himself.

Don't endanger your finances to help out your parents or siblings. If you want to invest in real estate, find a good REIT to invest in.

 

[HI Bill]

IMO bad idea.

+1. Sounds like you don't have the resources to take this on. I'd focus on finding a timeline to get your brother out of the house, and clean it up, fix just enough to allow it to pass inspections, and sell it.

The only other reasonable idea I can see is if your parents had enough cash to float the renovation, it MIGHT be worth the risk of doing the upgrades, to earn them another $100K. This is a risky path, as there's no guarantee you'd make that much profit on such a small place?

Living 700 miles away, I just can't see you doing a VRBO....

 

[Neecy]

IMO bad idea. Your net worth is currently ~$736k and you want to invest 40% of what you have worked a lifetime to accumulate into a 1,025 sf/$300k property that has ridiculous property taxes for nostalgia's sake.

Frame it another way... say your parent's didn't own the home... would you be interested in investing $300k in a rental property in Evanston, IL with a nice location 700 miles from where you live? Let's say it was a $300k property in a great location just west of Nashville? In short, I think it would be foolish to invest in a rental property so far from where you live (though I'll admit that I'm not keen on residential real estate to begin with).

Help your parents and siblings sell the property "as is" to a flipper for $200k and add that $200k to your parent's nestegg for their benefit... meanwhile, your brother needs to man up and take responsibility for himself.

Don't endanger your finances to help out your parents or siblings. If you want to invest in real estate, find a good REIT to invest in.

Yes, I know!! You are absolutely right. It is in such a great location though, but I needed objective feedback. Thank you for your assessment

 

[Neecy]

+1. Sounds like you don't have the resources to take this on. I'd focus on finding a timeline to get your brother out of the house, and clean it up, fix just enough to allow it to pass inspections, and sell it.

The only other reasonable idea I can see is if your parents had enough cash to float the renovation, it MIGHT be worth the risk of doing the upgrades, to earn them another $100K. This is a risky path, as there's no guarantee you'd make that much profit on such a small place?

Living 700 miles away, I just can't see you doing a VRBO....

Oh, I live on the east coast and my brother is still in Chicago and can manage it as well.

Yeah, my parents resources are tight and they would welcome $200k right now for sure.

 

[gauss]

So were your siblings both living there rent-free for all these years?

Sad to see your parents financial resources dwindle, if this indeed was the case.

I would say get them out and sell the place to cut the losses. Only question is to renovate and then sell, or sell as-is.

Unless you are real handy and looking for a project (ie time not an issue), I suspect the most efficient way would be to leave it to the flippers.

-gauss

 

[Fishingmn]

You should just sell. There will be bad blood if you buy it cheap and then flip it for a large profit.

 

[Aerides]

You should steer well clear of this. Nothing in the post indicates the parents even want to sell, so approaching them with a recommendation to do so - kicking out the brother in the process, and potentially profiting yourself? Disaster in the making, even though it all makes perfect sense on paper.

If you really want a house in that location, keep your eyes open for one like the neighbors one that sold. Doesn't have to be this one.

 

[Arizona1]

Sell the house for the support of your parents and let your siblings fend for themselves. Right now your parents are supporting them.
You’ve earned a great income and pension for yourself.

 

[OldShooter]

... I needed objective feedback. ...

Here is feedback from another angle: Illinois is going bankrupt. You (or your parents or your brother) do not want to own real estate of any kind in Illinois. It is like owning a deck chair on the Titanic. Illinois residency is not far behind as a Very Bad Idea.

 

[pb4uski]

I hadn't even though ot that angle... though I agree. DSister and DBIL own a house in IL but live in TX... I have encouraged them to sell it sooner rather than later.

 

[Neecy]

So were your siblings both living there rent-free for all these years?

Sad to see your parents financial resources dwindle, if this indeed was the case.

I would say get them out and sell the place to cut the losses. Only question is to renovate and then sell, or sell as-is.

Unless you are real handy and looking for a project (ie time not an issue), I suspect the most efficient way would be to leave it to the flippers.

-gauss

No, both siblings paid rent but at a discount considering the property taxes and insurance. It would be tight for them to renovate it themselves, so they either make minor improvements and sell it for a higher price. Or turn it over to the flippers, which would be the easier option for them. Yeah, their resources are OK. They prefer my brother to stay put since renting is more expensive, especially in the long run. Thank you for your input.

 

[Neecy]

You should just sell. There will be bad blood if you buy it cheap and then flip it for a large profit.

Yeah, I know. I should steer clear and let them get what they can, which would be a great help to them.

 

[Neecy]

You should steer well clear of this. Nothing in the post indicates the parents even want to sell, so approaching them with a recommendation to do so - kicking out the brother in the process, and potentially profiting yourself? Disaster in the making, even though it all makes perfect sense on paper.

If you really want a house in that location, keep your eyes open for one like the neighbors one that sold. Doesn't have to be this one.

Well, my brother is causing friction by complaining about living there and paying for rent in a space that needs significant work. They are even paying for his utilities, so I want to help him live his dream of paying someone else's mortgage at this point. You are right though. I love the area but it would be a strain to add more debt right now. Thank you.

 

[Neecy]

Sell the house for the support of your parents and let your siblings fend for themselves. Right now your parents are supporting them.
You’ve earned a great income and pension for yourself.

Yes, you are completely right! They are pretty ungrateful and feel they are doing my parents a favor. lol. Thank you.

 

[Neecy]

Here is feedback from another angle: Illinois is going bankrupt. You (or your parents or your brother) do not want to own real estate of any kind in Illinois. It is like owning a deck chair on the Titanic. Illinois residency is not far behind as a Very Bad Idea.

Ugh, really! I did read people are leaving Illinois some time ago though. Thanks for the warning!

 

[pb4uski]

Well, my brother is causing friction by complaining about living there and paying for rent in a space that needs significant work. . ...

----- "Bro, you're right... it isn't right that you pay rent for a space that needs significant work... but OTOH, the landlord can't afford to improve the place to your standards... and they could use the money from a sale so they have decided to sell... you can leave now or the landlord will give you 30 days notice of when you need to be gone. ............ BTW, don't let the door hit you in the a$$ on your way out. "

 

[Neecy]

----- "Bro, you're right... it isn't right that you pay rent for a space that needs significant work... but OTOH, the landlord can't afford to improve the place to your standards... and they could use the money from a sale so they have decided to sell... you can leave now or the landlord will give you 30 days notice of when you need to be gone. ............ BTW, don't let the door hit you in the a$$ on your way out. "

Lol...exactly!!

 

[OldShooter]

Ugh, really! I did read people are leaving Illinois some time ago though. Thanks for the warning!

Chicago Tribune has run several articles on the huge state debt and unfunded pension liabilities. Chicago city has similar problems exacerbated by the recent, successful, teacher strike. No telling how Chicago's problems will splash into the countryside. More: https://www.chicagobusiness.com/html-page/848696

Although the state has started nibbling at the edges with new taxes, the bomb is yet to drop. Apparently it will take amending the state constitution to limit the pension liability. IMO the unions will demand that others receiving pensions and SS share the suffering, so I'd look for tax increases there.

People are leaving, tax refugees, but slowly. Hoperully there is still time to get out while the getting is good. Well, at least maybe time to get out while the getting is better than it looks like it will be.

 

[Neecy]

Chicago Tribune has run several articles on the huge state debt and unfunded pension liabilities. Chicago city has similar problems exacerbated by the recent, successful, teacher strike. No telling how Chicago's problems will splash into the countryside. More: https://www.chicagobusiness.com/html-page/848696

Although the state has started nibbling at the edges with new taxes, the bomb is yet to drop. Apparently it will take amending the state constitution to limit the pension liability. IMO the unions will demand that others receiving pensions and SS share the suffering, so I'd look for tax increases there.

People are leaving, tax refugees, but slowly. Hoperully there is still time to get out while the getting is good. Well, at least maybe time to get out while the getting is better than it looks like it will be.

Wow, interesting read. It does help explain why the property taxes are so outrageous. I do not even pay that much in Virginia and my house is worth at least $500k. Thank you.

 

[oldtrig]

Should my parents sell their house "as is" to flippers
Yep

 

[Teacher Terry]

Yes they should sell it.

 

[NgineER]

Should my parents sell their house "as is" to flippers
Yep

They don't need to sell to flippers exclusively. Just get a couple of real estate agents through to get their input on sale price. Choose one real estate agent that is not too optimistic about pricing.

• 
  Set the price to sell

• 
  Sell as-is if too many repairs are needed

• If there are issues that would preclude financing, this could be spelled out in ad, would lend itself to investors more than first time home buyers.

• Take offers right away, but don't accept any until after the first weekend of being on the market.

 

[Neecy]

Great advice! The realtor said if she doesn’t list we can save 3% in realtor fees. Do you think we should still list it? I’m trying to see if my brother wants to try a first-time homebuyers program too.

 

[Sunset]

Great advice! The realtor said if she doesn’t list we can save 3% in realtor fees. Do you think we should still list it? I’m trying to see if my brother wants to try a first-time homebuyers program too.

The realtor is trying to keep the "listing" private, so she can sell to friends who will under pay. Only way you know you get a fair price (maybe it's $250K and not $200K) is by having it offered public.

Alternatively, you could pay (not free) for an assessment of the value, it would at least give you an indicator, but note, my experience with these assessments is that they are pretty flexible in the final amount, so don't hire via the realtor or even tell realtor you are doing it. Once done , the price may still be too low or high compared to what a public listed price will sell for.