Save childhood home or walk away?

[cbrsurfr]

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Update 12/16/15

Ended up buying the house for 70K as that's what it appraised for at the time. I was right on the money with the 10K estimate of repairs/upgrades. The renters I had lined up had their Navy orders extended which meant they would be 6-8 months out after I completed all the work. So I decided to put it up for sale on Zillow slightly underpriced. Had 3 offers the first week all over asking. I close on 12/28.

If I waited till Spring/Summer I could have gotten more but I didn't want the house to just sit (carrying costs, risks of vandalism, etc). I also tried to have my current renters switch houses but they didn't want to pay any more than the were currently.

Before taxes and after all expenses I estimate profit of about 35K. Not a huge amount but decent for the 4 months it took to finish it.

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Long story short, my psychotic father is in the process of losing his home that my parents have owned since 1970. He had it made (from sizable inheritance) and lost everything due to some gambling but mostly bad car deals. His house that was fully paid for was used to get a HELOC for 50K which he used to pay some bad debts to Ford (wrote a bad check for a GT500).

He's now in a retirement apartment barely scraping by. He's in a wheelchair and can't do much of anything so the only income coming in is SS and a small pension. So his medical bills and apartment mean he can't pay the heloc and hasn't for about 9 months.

He is not upside down on the house but it does need about 10K in work to make it sellable.

So now I'm trying to figure out what to do. This is my childhood home. My mom ran her salon business there and died there about 14 years ago. Her name is still on the house.

Given that it's in the foreclosure process I don't believe I as a family member can get a loan against it and purchase it (at least not until the loan is brought current). Which means I need to buy it for cash (I believe). I think I can get it for approx 65K but I do not have that laying around. Fixed up I should be able to rent it for about 1200-1250/month.

So I believe my options are:

Cash out refi my main home and use that money + savings to buy the house.
Take out a loan against my 401K + savings to buy the house.
Take out a heloc or personal loan + savings to buy the house.
Ignore everything and walk away.

I would intend on fixing it up and turning it into a rental property. I already have another rental about a mile away.

I have no debt other than current home and rental that are both worth more than I owe. My 2 homes currently are 1/3 of my gross salary. However the rental is occupied and that covers the full payment + about 150/month in income. I also have a room in my current house rented to a friend for $600/month.

My lawyer wants me to just sell it, but like I mentioned it's not really in sellable condition right now.

So fight to save it or walk away?

 

[Tim]

I say save it. If you can make an investment and start getting more rental income, why the heck not?

 

[tortillasoup]

The only issue I see is that OP is in Illinois, a dying state. That whole area feels like its dying, so property values seem to be a losing proposition.

 

[JEDI]

let it go into foreclosure and buy it cheap?

also, get your dad on Medicaid?
or is he old enuf to be on medicare?

 

[boomerang]

Cash out refi my main home and use that money + savings to buy the house.
Take out a loan against my 401K + savings to buy the house.
Take out a heloc or personal loan + savings to buy the house.
Ignore everything and walk away.

I wouldn't necessarily turn to a lawyer for advice on this. It all comes down to if you can cover the payment regardless of how you make it happen and it all hinges on whether you can even get the house and you don't seem certain of that.

If I was going to leverage one of my properties, I would leverage the rental home if the numbers work out. You won't like the terms on the personal loan so that leaves refi or HELOC on either your main or your rental.

Most importantly, make the decision from a business perspective and separate yourself from the personal factor. It either makes sense or it doesn't despite it being your 'family home'.

 

[MongGrel]

It sounds to me you know more about the finance end of it than I do with that much property.

Unless you're really attached to it, I'd say walk away.

Even if I was attached to it I would probably walk away.

My 2 cents.

 

[Thump553]

Ignore any advice you get here and talk to a good attorney in your state (Illinois). There are probably lots of alternatives, and maybe cheaper ways, to accomplish what you want to do.

In any event, following any "free" advice you get here could cost you and your father (or father's estate) a lot of money.

PS-anything is in saleable condition, you just won't get the optimum results as is probably.

 

[boomerang]

^^^^^^^
But don't ignore this advice. :whiste:

 

[cbrsurfr]

I don't believe I can get him on Medicaid until the house is gone since he has to have less than 2K in assets.

I'm working with a lawyer I guess I just don't care for his opinion. He recommends to list it as is, however we'll get nothing for it, lucky to break even. The inside is pretty trashed, but I can do a lot of work myself to keep costs low. I know exactly what's wrong, what can wait, etc. I would rather buy it and make it profitable than sell it and break even. There's also no commissions, etc. if I buy it.

There's just some unknowns right now and I don't know how far along the foreclosure process is. I guess they tried locating my father to serve him with a summons and they couldn't find him. They didn't look too hard. There's also back taxes and my mom's name on the title to complicate things.

My father's estate consists of this house now. That's it. From plus 500K to nothing but the house with 50K borrowed against it in 5 years. Nothing to show for any of the money. The last car was repo'd.

 

[TwiceOver]

I don't hold emotional attachments to inanimate things so I *personally* would let it go.

But that's my opinion.

 

[crashtech]

Property going for 65K that rents for $1200+ is a real potential money maker.

 

[SsupernovaE]

Do you have any siblings?

 

[cbrsurfr]

Do you have any siblings?

Yes a brother, but he has no money and lives a few states away.

 

[cbrsurfr]

Property going for 65K that rents for $1200+ is a real potential money maker.

I would need to put another ~10K into it, so 75K all in. But yes it's very favorable to turn into a rental.

 

[Ruptga]

How boned would you be if you went for it and the worst case happened? If you can tolerate whatever that is, go for it.

 

[Thump553]

Can't your lawyer advise you on the status of the foreclosure, what needs to be done to take your mother's name off title (I'm guessing her estate needs to be probated, but may IL has an expedited process and the costs involved in those steps? That is critical information to know, coupled with whatever potential resentment your father or brother may have from you profiting on the house.

If your father loses the home in foreclosure that may expedite the process to get him on Title 19. A below market sale to his son will greatly complicate that process (in my state there is a five year look-back).

It may make sense financially to do the deal but also the family factors (including Title 19 eligibility) should also be considered. I'd specifically discuss Title 19 ramifications with your attorney if I was you before doing anything. From what you have said so far, I'm inclined to say stay away, have your father sell it for what he can get (with your assistance, probably) and have him piss away that money on doctors, assisted living, etc. before he goes on Title 19.

 

[PowerEngineer]

Property going for 65K that rents for $1200+ is a real potential money maker.

...nothing but the house with 50K borrowed against it in 5 years.

I'm sorry that you're faced with some difficult choices.

On the surface, it appears that the upside of buying the house is roughly $15k. And who else, potentially your father and siblings, might feel entitled to a share of that $15k? How many family members are going to assume they have a right to "help" you make decisions about what you do with the family homestead?

If you want to invest in a rental then I suggest you buy a different home that has no emotional attachments for you or the rest of your family.

Good luck whichever way you decide to go!

 

[compcons]

The only issue I see is that OP is in Illinois, a dying state. That whole area feels like its dying, so property values seem to be a losing proposition.

Illinois may have bad finaces, but the suburbs of Chicago still has plenty of money. Chicago is NOT Detroit or Pittsburgh. The state will have some bumps and bruises, but there is plenty of money left in the city that doesnt rely on low wage or blue collar earners. Don't assume you understand IL real estate if you don't live here.

Remove your attachment to the house and have a disinterested party talk to you about the investment opportunity. Your lawyer (unless a real estate lawyer ) should probably shut the feck up on the topic. I suggest passing it through a realtor who can confirm your success of a rental in the area. Also look at it as a flip opportunity and see if that makes sense. It sounds to be skimpy profits as a flip and unless it's in a heavily rented area, it may not make sense.

Good luck!

 

[jagec]

I would need to put another ~10K into it, so 75K all in. But yes it's very favorable to turn into a rental.

Then you don't even need to consider the emotional factors--buy it!

 

[Eug]

You probably know the finances here better than anyone else in this thread. However, from your post it does sound like a lot of the reason you are considering is because of emotional attachment. If that's true then that may be a red flag.

Would you consider this if it wasn't your childhood home? If so, is this deal that much better financially than other ones out there (incl. other foreclosures)?

BTW, those price ranges are remarkable. Around here $75000 won't even buy a 1-bedroom condo in a slum.

 

[John Connor]

How is the renting biz going? I have always heard horror stories where tenants destroy the place or don't pay rent. Personally I wouldn't try to keep something like a house with emotional attachment that seems like a huge burden. In addition to the lawyer I would talk to a financial planner of some sort.

 

[Murloc]

the framing of the whole thing as "saving childhood home" is a bit scary, you should think about it in money terms only, you're going to rent it anyway so you're not saving anything, other people are going to live in it.

 

[lxskllr]

How is the renting biz going? I have always heard horror stories where tenants destroy the place or don't pay rent. Personally I wouldn't try to keep something like a house with emotional attachment that seems like a huge burden. In addition to the lawyer I would talk to a financial planner of some sort.

Being a landlord looks like a PITA to me. A friend of mine rents an ordinary, but nice rowhouse for ~$1800 a month. Lately, turnover has been ~yearly. No surprise really. $1800 is a shitload of money to keep rain off your head, and awfully close to just paying a mortgage and owning it. Every time someone moves it has to be relisted, and polished up to get someone new in. Potential tenants have to be reviewed, and selected. Rinse, repeat... He makes money, but it's a lot of work for the headache involved. Not something I'd be interested in doing, which brings me to...

People's concerns about "emotional attachment". That could work in your favor being a kick in the ass to becoming a landlord. You have a reason to save the house, and make some money. Make sure you want to be a landlord though, and dealing with all that entails. That house could become an albatross, and be more hassle than it's worth. Money isn't the only consideration. Being a bit poorer and stress free has value.

 

[Blanky]

Don't get into something as significant as a home based on emotion. I say walk because you're already clearly using emotion to excessively motivate a financial decision of huge significance. Overpaying for an ugly car that you used to own is one thing, but this is a house. You'll also get upset when your shitty tenants ruin the house because it was your childhood home, like watching some filthy guy plowing your ex-girlfriend.

 

[MtnMan]

If you can get it for 65K and it is worth say 200K, that's a big win.

Sell it, rent it or live in it