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if it were my grandparents, i would ask a realtor for some comps, then decide if i should buy it myself, alone with a mortgage. the grandparents can give out cash when they die.
next i would rent it out in the summer, close it down in the winter. years later, i wod decide what to do wih it.
i would never invest with family, especially on a project like this where everyone will want something different.
if it were my grandparents, i would ask a realtor for some comps, then decide if i should buy it myself, alone with a mortgage. the grandparents can give out cash when they die.
next i would rent it out in the summer, close it down in the winter. years later, i wod decide what to do wih it.
i would never invest with family, especially on a project like this where everyone will want something different.
I agree.
Too many family members involved in the first place. There is a good chance it will cause hurt feelings and estrangement.
In the second place, this is not "flipping a family home," this is "tearing down a family home and building a spendy one and hope buyers like it it" situation. Many times, buyers of expensive homes want to build it themselves to there own specifications.
What I would do would be to put it on the market for $700K and sell it to a family that wanted that good neighborhood and great schools but didn't have $1.8 million for a house.
Precisely what I would recommend, since there are too many issues with which you are not familiar. You cannot build a spec ~$1.5M house for the same price as a builder because you do not build multiple homes and the costs of architects and/or engineers are at full retail, not spread over the cost of several houses of similar style, or with a builder from whom the architect/engineer/real estate agent/contractors derive business on an on-going basis, not to mention full retail markup on building materials, carrying costs in the forms of taxes, etc.
My mother had a similar situation a few years ago, but it was with a house that she and her sister inherited from a cousin who was an only child. The original investment was made with proceeds from my great-grandfather's estate where my great aunt had purchased several capes in a first suburb as rental properties. The cousin was a gadfly, an attorney by education, who never worked and liked to gamble and his expensive alcohol, so when his parents died, he sold their large house and moved into one of the rentals that had been kept for many years. He sold off the other investment properties and they were replaced by McMansions. So, the cape was the only one remaining of the original investment, and passed to my mother and aunt upon his death. The house was in good repair and was a simple 4BR cape, just that prices had crept up and land was scarce close to NYC, and the school district is sought after. The builder had offered around $600k and the neighboring houses were in the $1.5M range for new construction, so pretty fair, as other parts of the town are a tad more expensive (Westchester County, comparable to Chatham).
I mentioned that the house was for sale to a mechanic who worked on my great aunt's cars, and whose Mercedes had to have the address of record changed in their system. He asked about the house and said that he was looking, but couldn't possibly afford that neighborhood. When I explained it was a small, original house, he really was excited because he wanted the schools for his family, and a respectable house, as they had outgrown their condominium. Needless to say, my mother and her sister accepted a lower offer from him because he wanted it as a family home, and it's still there in all its original, yet immaculately maintained glory.
I would put the house on the market at a fair sales price for a family who wants it, rather than sell to a builder, or try your hand at investment spec property building, especially when you are looking at seven figures and multiple people involved. If you were to pursue it, your wife's grandparents would need to sell the house to an LLC with the family members participating investing for the spec build, proportionally. You would need an appraisal and an attorney experienced in elder law, if there is assisted living involved in the future, as that can be an issue with transfer of property at below market rates. Once the investors buy, the grandparents would then invest as the building fund, or large proportion of it, but it's doubtful that they would come out ahead of just selling the house as there are too many payouts in the pie of the profits, from which you have to deduct building expenses and transaction costs.
Perhaps they should look to update the house a bit, add a second bathroom, and put it on the market for $750k to see if a family would want it. A 4BR/2BA is more attractive to a family than a 4BR/1BA. You're not going to profit in the seven figure range at all because building a larger, higher-end house is not inexpensive, at full retail in a high cost market. You cannot expect a lesser quality, mass produced "kit" home as some builders sell to consumers to command the prices that a quality build new home from an established contractor will fetch. The process will take several months to a year and will be a headache, especially as this is not the primary business of anyone involved in the project.
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over 30 years of experience as a project manager building the kinds of homes that we would want to build in that area, so he not only knows the construction process, he also knows the local code officials, zoning officers, etc... Essentially, we have the know-how to construct the home, but not how to structure the deal/obtain the financing.
is LACKING THE SKILLS IN running the financing then he is NOT AN ASSET. It is very different being a "project manager" or construction foreman and being able to understand the financial risks of this type proposal. I literally have seen otherwise smart builders get WIPED OUT by financial issues. If the "project manager" has been doing this for 30 years he too should have seen such things and if he is being honest to his elderly in-laws and disabled sister-in-law he will STEER CLEAR of involving their funds in this effort.
If he wants to use his own money / credit that is a different story. I might even tell the OP that if they are young enough to recover from anything that goes wrong, willing to risk a little "mad money" and the time to contribute some hands-on time on the project MAYBE they could partner with the experienced project manager, but if things go utterly wrong will the OP get dis-invited from family events and such?
If the OP (and I guess his father in law??) have never before "partnered" on anything financially I would be hesitant to recommend that their first project involve so many other family members. The level of involvement is a recipe for ruin. OTOH if grandpa & grandma are not in any hurry it MIGHT not be the worst idea to explore transferring ownership of their home to a trust. That trust could either be used simply to make it easier to facilitate the sale of their home should that become necessary OR to a allow another LLC headed up by the OP and his FIL to proceed with the new construction, though the issue of obtaining construction financing would still likely require liquid assets of about one third of the estimated construction cost and sufficient income from both OP & FIL to qualify for loan. Of course the grandparents should still have the offers from the other builders. Maybe a 10% discount for family, but more than that and there will IRS issues with lack of arm's length sale being a illegal end round around gift taxes. In round numbers that means that if land value is about $400K and the build is going to be over $750k (and that is probably tight for top notch 3000+ sq ft home in suburban NY metro...) FIL and OP together better have about $600k cash (for land plus 20% of construction) before they even think about talking to any lenders. If things work out and the OP and his FIL do profit they can then gift some of the money back to grandparents and disabled sister. If things do not work out the OP and FIL need to understand that lenders are going to hold them fully liable for the half a million dollars of construction costs regardless of LLC...
Last edited by chet everett; 09-06-2016 at 02:54 PM..
I see what your saying but like others have said if you run into any problems that could cost you all that money that your trying to get. Also just because they sell it for 1.2-2 million that's not what their making. by the time their cost add up they make what you could have sold it for in the first place with out the problems. Start the bidding war and let the games begin
What does flipping a home mean is like flipping it upside down??
"Flipping a house" = Buying a home for a price, doing some work on it, and then turning around and selling it quickly at a higher price than you paid for it for a fast profit. The intention in most cases is to do this fairly quickly, and never keep it or live in it.
It's gambling, pure and simple. You risk a certain amount of money over a small period of time, and hope to make a profit at sale.
So, it basically boils down to buy LOW, and sell HIGH. Some people can get real good at it, but you are ALWAYS at a certain risk level that could ruin you financially if not controlled very carefully.
You can "FLIP" anything in this way, car's, motorcycles, etc. It's just houses tend to get you more profit, but that's because it's usually at a much higher risk level.
I say NO. Not with family. You really risk alienating many or all of them with a project such as this. Then, you'll also have to deal with worse problems if it fails for some reason. Just because some builders are able to do this, does not necessarily mean that a family built project house in the same area can get the same price they can. You don't have their reputation.
If they are going to do it, have them sell to a builder at top dollar, and let him take all the risk.
Hire an independent appraiser (or even more than one), and have them do a work-up on the present sales value of the house.
If your grandparents agree, then market it to ALL the local builders, and let them bid against each other. You may get a better price than the appraisals set price. You just send the builders a mailing on an "open house", have them all come in and look it over, then tell them you want their best CASH price submitted as a sealed bid, and that you'll pick the best one at the end of 24 hours.
This way can work very well, and has been done before...
I agree with this. Even in the most amiable families, there are too many fingers in the pie for me to be comfortable.
There are too many unknowns in the lengthy timeline of what you propose.
The grandparents should get the highest bid, while the getting is good, and invest the money for their future needs. Their heirs are not really a factor yet, unless they wish to take care of the aunt right away.
if it were my grandparents, i would ask a realtor for some comps, then decide if i should buy it myself, alone with a mortgage. the grandparents can give out cash when they die.
next i would rent it out in the summer, close it down in the winter. years later, i wod decide what to do wih it.
i would never invest with family, especially on a project like this where everyone will want something different.
That sounds like a disaster. If one family member buys the property (even determining fair market value through appraisal vs. actual market value can cause issues) and then starts profiting off of it, boom. Resentment.
I've read about an estate lawsuit between siblings, a son/ brother purchased the land from the estate then developed it, making it worth much more, the sibling sued and WON, and the brother had to pay her half the market value of HIS developed property.
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