Posted by phil fernandez on November 28, 2000 at 08:52:56:
Wayne,
This might not be the answer you want to hear, but here’s my opinion.
You sound like you’ve got a good handle on the real estate investing business. At the end of your post you say, " most of their financial problems are due to bad management and planning." This pattern of bad decisions has to be reversed. Bailing them out in the long run will probably not work. Six months down the road chances are they will be in the same predicament.
Instead of bailing them out financially, why not apply your knowledge and try to change their mindset. From your comment that they still feel the property as is is worth the $269,000 shows a lack of reality to the situation at hand. If one is about to lose their house, they won’t be able to command top dollar. Time is working against them.
There seems to be a lot of equity here. I would not bail them out yourself, but teach them how to get out of their situation themselves. Perhaps the best lesson they could learn is by losing the equity. Might be a wake up call.
Posted by WayneMD on November 28, 2000 at 08:35:14:
As I sit here awaiting my new Bronchick L/O course to arrive, I find I have a daughter who is in a financial jam. The reason I need your collective help is that I cannot look at my daughter?s pre-foreclosure situation as a businessman ? for obvious reasons.
This is a no-brainer under normal circumstances. In this case, I need to find a way to help her out, make sure she gets as much money out of the deal as possible, limit my own exposure, and do this in a way that has me not ?giving? to them. In other words, I need to make things at least marginally equitable for me. I will be using personal RE investing funds and I want them back.
Here is the situation:
Property is 2/2 SFH with a 1/1 Rentable unit upstairs. Rents from the upstairs have been as high as $700 per month, including utilities. Unit is presently empty, but a more equitable rent would be on the order of $600-650.
Property location is excellent . . . waterfront. There are five in the family, so they really need to live in the entire house or buy another house with more than 2 bedrooms. Things are cramped for them. They cannot afford to live in the whole house.
Property condition is poor. Present value about $230K; improved value $269K+ . About $15K needed to get improved price.
Conventional loan balance is approx 98K. There is a second of $20K, which I happen to hold. (Question: would it be possible for me to buy the first mortgage at a discount from the lender? The lender no doubt is Fannie Mae or something like that).
Questions and ideas:
I could buy a half interest in the house for the amount of the first ($98K), continue to hold the second, rent out the upstairs and collect the rent and half the deductions. I also would share in any renovations. This would eliminate their first mortgage payment, which is exceptionally high. They still would pay on the second and taxes and so on.
I could just buy the house from her at $230,000 or so and repair and sell. They would net about $100k out of such a deal. Unfortunately, they have this fixation that the place is worth $269K as is. Wishful thinking and causes me to look like an opportunist with my own daughter to buy for less. Possibly I could structure a deal whereby I split any profits with her I was able to get above $269K? I have done a couple of major renovations in the past very profitably, so this would not be a problem.
I could just make their payments for them until they sell the place on their own and perhaps help them buy another place after settling up with them.
Because of their erratic income and uncertain financial future (husband currently in hospital) I feel my best financial defense is to get them into a situation in which they can support themselves. I?ve thought about buying a mobile home park and having them manage it (that would take care of their rent and I could do a few Lonnie deals on the side LOL) for instance. I?m at a loss. If there were not three grandchildren involved, I would let them fend for themselves since most of their financial problems are due to bad management and planning.