Hey there, kind of a deceiving question whose answer seems obvious, but one that my SO and I suspect blind corners on. Will post to other RE subreddits, but I want to hear PF's take on it first. Sorry for the long post.
Grandfather's Sonoma County farmhouse (built 1919) is currently owned 50/50 in a trust by both my SO's Father and SO's Aunt. They have given SO the option to purchase off market, no realtors involved, with a lawyer producing the sales contract.
The house (2400 sq ft, 2 story, 4bd/2b) and land (1.9x acres, Ag Residential) appraised for 1.3m in June '21. Comps in the area generally support this price point and are holding 4 months later. Property currently is rented at 3k/mo with long term tenants. Our plan includes keeping the property as a rental, with an aim to increase rent to market rate ~3500/mo after some improvements to offset operating costs.
So. Aunt has agreed to sell her 50% share of the property for half of an assumed 1.25m "family" sell price, so 625,000.
1st curveball: Father has a loan against the property for 175,000 which he expects to satisfy with funds from my SO. This would essentially be his sell price to her, but for cap gains implications he would remain on the title as 50% co-owner with my SO. 100% inherited by her when he passes. However, he has made it clear he does not want to be monetarily burdened further by the property. SO will be expected to cover all costs going forward. While I don't agree with this personally, she does get to enjoy a blended prop tax rate under this structure. Assume lawyer will play key roll in details here.
2nd curveball: SO currently wants to finance the entire purchase with no money down. She has excellent credit and the few mortgage brokers we have spoken to have said securing the loan (30yr at a max of ~3.5%) is a no brainer since the delta between appraisal (1.3m) and loan (800k) to buy out her aunt and father's interest is respectively large. Mortgage due would be around 4000/month. No PMI since loan is <80% of house value.
3rd curveball: Inspector remarked that house is above average for 100 yr old structures in North Bay Area, but house needs roof repair (critical, est 25k) and other assorted tune ups (within 1-3 yrs, est 60-80k).
The biggest kicker which has us cautious:
She makes $7474/mo after taxes and 401k contribution. We currently rent in Los Angeles of which she is responsible for 1400/mo, and generally budgets 2500/mo for other living expenses. If she bought, we've calculated the cost to own her grandfather's place at 5500/mo (mortgage, apprx prop tax, apprx insurance, gardener expenses, management etc). Assuming a rent of 3500, and personal budget as-is, that only leaves her with 1000-1500/mo left over, of which 600 goes into a savings account.
The ultimate goal of the purchase is to keep the property in the family and either hold/increase value and rethink a sale 10-15-20 yrs down the road, or personally moving in within that same time frame. We currently view keeping the unit rented as an offset to the cost of ownership and not income generating since she/we will have to settle the difference. We are optimistically spinning this difference as a circular charge back into the equity of the house and not a drain on income.
I will factor into the equation monetarily, but for argument's sake, we are treating this as if she was solely responsible for, and solely benefitting from the property.
We both have liquid emergency funds well in excess of what PF recommends, but does anything glaring pop out here besides the obvious 5500 monthly cost against the 3500 rent? We don't think either of us will have an opportunity like this RE wise in SoCal or NorCal ever again.
Submitted October 04, 2021 at 10:52PM by hamrockistkrieg https://ift.tt/2YnrDv2
