Posted by Rich on March 27, 2006 at 21:31:24:
Just started the Estate Planning process myself. How you hold title and the inheretance laws of the particular state means everything.
Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by Jay
Posted by Jay on March 26, 2006 at 21:39:05:
I’m coming to a situation where I may get half a house.
The seller is in a court process - he owns half the house, and his wife (now dead) owned the other half. The seller is willing to put a contract to me selling whatever he gets after the court process.
Here’s my question:
How do I place a value on 1/2 of the house? I pretty know how much I should offer on 100% of the house… but how much is 1/2 of it?
Before I get some smart answers back, yes I know it’s 50% … but is 1/2 a house worth 50%?
Yes, I’ve read posts on creonline. I’ve found some stating that partial ownership is a great place to be in - can someone elaborate why … and how to valuate a situation?
Thanks for everyones input!
Jay
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by Rich
Posted by Rich on March 27, 2006 at 21:26:36:
How was the Title held? Is this a community property state. If its “Tenants In Common” then each party has a divisable interest. Is there a will? That sould indicate who the deceased wanted to give their half to.
This should help decide what the likelihood of problems is.
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by Natalie-VA
Posted by Natalie-VA on March 27, 2006 at 10:30:12:
Jay,
Don’t give this guy any money until you find out what needs to be done by a title company or attorney.
The whole husband/wife thing and her death can put a big wrinkle in what you “think” you’re buying.
–Natalie
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by Brian (NoCA)
Posted by Brian (NoCA) on March 27, 2006 at 08:17:56:
If the ownership was a tenancy in common, there is no right of survivorship. Typically, partial interest holders, whether it be by partership, closely held company or tenants in common (TIC) are normally entitled to a discount for lack of control and lack of marktibility of the interest. It is well evidenced that a partial interest is less than it’s pro-rata share of the whole value, i.e. if I were buying a 50% ownership in the house I would expect to take a certain % off the pro-rata 50% value. How big of a discount depends on the situation. For interests of limited partnerships that hold commercial real estate, I have been seeing discounts of 20-40%.
Keep in mind that if the vesting is indeed tenants in common, one party has the legal right to partition the property, i.e. petition the court to force the sale of the property and distribute the proceeds. This is costly, however I have seen it happen when a lot of $ is on the line. Buying into a partial interest ownership can be attractive because of the discount, but just make sure you know the risks also. Do an internet search for co-tenancy and paritioning and you will probably find a ton of information. Also IRS revenue ruling 59-60 addresses the valuation of these interests.
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by ski
Posted by ski on March 27, 2006 at 07:11:14:
If the wife is NOW DEAD why does he have only 1/2? Doesn’t he have the survivorship of the property? Am I missing something…
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by Joe Kaiser
Posted by Joe Kaiser on March 27, 2006 at 01:12:00:
To me, a half interest in a house is worth half of the full retail value of
the house because that’s what I can get for it.
But to the guy I’m buying from, who can’t even get a nickel out of that
thing, it’s not worth a whole lot.
With that understanding, you have to both come to the realization that
there’s just not a whole lot of value here (and there likely isn’t, in it’s
current state). It’s critical you both arrive at that same spot because
once you do, you can simply ask the magic question . . .
What’s the question?
In the old days, it was suggested that you say, “would ya take . . . $XX?”
Don’t do that . . . it’s a terrible question and makes you look like a
schmuck.
The magic question is almost always, “would it help if . . . ?”
We’re all about help . . . but don’t ever offer to help (don’t get me
started - it a whole nuther topic).
Let’s violate both the “woodja take” and the “he who mentions a
number first loses” rules and say, "Hey Bob, I really don’t know what
this thing is worth. Would it help if I gave you $500 and at least get it
out of your hair so you don’t have to ever hassle with it again?
So, the answer is we don’t “offer” anything. We take a stab at it to test
where he’s at after first crippling all expectation of a profit.
And even if $500 is totally unacceptable, we’ve burst that bubble (yes,
there is a housing bubble, Virginia, and we set out to burst it all the
time) and he knows our expectation of value is now somewhere around
$500.
He’s going to have to earn anything above that.
Get on the same page, commiserate, burst that bubble by taking a stab
at it by asking the magic “would it help if” question to get a better
definition of where he’s at.
And from there, it becomes pretty clear if a deal is in the making or if
it’s time to move on to the next one.
Joe
P.S. Kinda rambling . . . I blame the big spagetti dinner tonight . . . let
me know if you need me to decipher.
Re: Buying HALF A HOUSE - PARTIAL OWNERSHIP - Posted by LeonNC
Posted by LeonNC on March 27, 2006 at 24:07:20:
I’m no pro but I’d have to say, it depends. What are the circumstances and what’s the CERTAINTY of making your desired profit? And are you using your own money?
You’re right it’s not worth 50%. Who would pay retail for a partial interest.
Is it a shot in the dark and you’re not sure how or when you’re going to get paid? If so, I’d be shooting to pay somewhere around $5k for a property with a value of $100k for a half interest.
If you’re only getting a half interest I’m wondering who’s going to have the other half? Alot depends on that.
Partial interests aren’t quick turn type of deals most of the time I’m sure. But I believe you can create big equities and work toward turning it into a check or a house with equity.
Maybe you’ll get lucky and Joe Kaiser will chime in.
LeonNC