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LuckyGuy's avatar

Is this real estate arrangement a crazy idea?

Asked by LuckyGuy (34720points) July 18th, 2014

There’s an old farm house for sale in the area. It was built in 1898 and is located on 5 acres alongside a wide creek perfect for fishing. I estimate it has 600 ft of water frontage with a dock. The previous owner started to rebuild and remodel it but gave up after only finishing the upstairs and let it go into foreclosure The bank wants to sell it at 75% of its assessed value for cash.

If I was not busy, and if I liked doing house remodeling, and if I did not already have a place to live. This would be perfect for me except I am busy, hate remodeling and live in a nice place.

I would like to buy it and let someone else live there for free as long as they work on it and fix it up. I would pay for all materials, supplies, taxes and utilities. I’d even pay a small stipend.
We could work out some additional financial arrangement where the person would get a share of the profit when the house is sold in a year or two or they can buy it.
On the surface this seems like a good deal for everyone.

Is this a crazy idea? How many ways can this go wrong? Do you know anyone who would be interested? Are there other considerations I am missing?

I am going to post pictures if I can figure out a good method.

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35 Answers

jca's avatar

I think mixing the role of tenant and the role of contractor is a bad idea. I think the person may take longer to fix up the house to extend the time that they can play “tenant.”

I think you’re better off having two separate people in two separate roles. Have a tenant be a tenant after you’ve played contractor or hired a contractor. If you fix the house and then want to sell it, that will be a separate situation than that of the tenant issue.

gailcalled's avatar

You would have to find a clone of you, with the same skills, work ethic and reliability. In theory, it’s a very good idea in theory, but many a slip twixt the cup and the lip.

(Let me count the ways).

Every story I have read of people who bought fixer-uppers for themselves, with the best intentions, high energy and enthusiasm and a lovely vision ended up very different from their initial predictions. The weather, their energy, unexpected illness or personal distractions,the changes in cost of materials, the delays from subcontractors andd supplies and the general endless unexpected surprises leads me to adbvise you to procede with caution.

gorillapaws's avatar

My girlfriend’s parents owned a property that was in rough shape. They rented it out to a “handy” couple for reduced rent with the agreement to fix it up. Needless to say the couple did very little “fixing up” (some of it had to be re-done later) and ended up moving out with several months of rent owed. They intentionally left out food so it would spoil and stink up the place when they vacated.

Be VERY careful about who you rent it out to. The kinds of people who prefer to live in a house in rough shape to a nice, finished space are probably on the edge financially. They may sincerely believe this is a good arrangement and fully intend to improve the property as agreed. Life has a way of getting in the way, and it’s going to be hard to evict them if they don’t meet their obligations.

zenvelo's avatar

As everyone else has said, the biggest risk is the work not being done. Your arrangement would need a timetable for completion of stages and for the whole project.

It needs to have a financial incentive with more than just a reward for completion, some kind of penalty for failing to complete. I have no idea how to structure such a deal, since involuntary servitude is prohibited under the 13th amendment.

rojo's avatar

I agree with all above.

I suggest you take the 25% savings from the sale and hire a competent contractor to fix it up the way you want it. Or, at the very least hire your own subcontractors to do it if you don’t enjoy the work.

gailcalled's avatar

Milo here; If you do want an indentured slave, I can send Gail along. Her renovation skills are only fair but she can be entertaining (in small doses) and she doesnt eat much.

rojo's avatar

Substantial renovation and updating can greatly increase the value and would be worthwhile if your plan is to re-sell it fairly quickly.

LuckyGuy's avatar

I’m figuring a sale in a year. I posted pictures here .

(I am not in any of the pictures.)

LuckyGuy's avatar

Milo. There are three bedrooms and all are available.
Probably lots of mice too.

LuckyGuy's avatar

Everyone. These are all good points. I will mull it over some more. Maybe someone will buy it before I decide.

Dutchess_III's avatar

Too bad you can’t rent it out to my son. He’d LOVE that.

I think there are trustworthy people out there. Just keep your eyes open. I think it’s great.

Dutchess_III's avatar

Pictures are lovely! I see you have duck weed too.

rojo's avatar

You did notice a lot of water damage in the basement didn’t you? Looks like at least a foot of water (plus wicking).

Dutchess_III's avatar

? I didn’t see any pictures of a basement @rojo

CWOTUS's avatar

The wet basement and exposed and sort-of-randomly-run electrical wiring would have me walking away from this place even if it were a gift. (Especially since it seems that the wet basement is apparently an incurable condition: the house’s basement floor is below the level of the water table, as indicated by the stream.)

I would advise against any further interest in the place. You can make the same arrangement with any house, so why pick one with such huge problems?

Dutchess_III's avatar

I didn’t see any basement pictures!

LuckyGuy's avatar

The basement has a sump pump but the power has been shut off for months. If I lost power for months my basement would be full of water. I am surprised the water level is so low! I find it encouraging. Also there were two out buildings I shoved my camera into an opening and took the pictures with the flash on.

I figure I can get this place for $75,000. Taxes would be $4,000 per year and utilities heat, water, internet, phone would be another $4,000. The place is on 4 acres with lots of wood. The wood burning stove is a high efficiency Lopi with stainless steel triple wall gong up on the outside of the building. There is enough wood already cut and stacked to heat the place for 2 years.

For the right person this would be great.

@rojo. The water was only about an inch. deep I was able to walk through it. in my running shoes.
The thing that makes this place special is the proximity to the water and the docks. It has so much water frontage. I can easily see some developer leveling the house and putting in a mansion.

Dutchess_III's avatar

OK, this is driving me crazy. Someone show me the basement picture. I see attic pictures and water pictures and the outside of the house, but no basement pictures.

LuckyGuy's avatar

The basement is the first group of 9 pictures . It might be on the second page you see.

Dutchess_III's avatar

Ah yes. That basement looks like ours. It’s actually a dirt cellar with a very low ceiling. When they put the heater in, they just dug a hole in the floor and dropped it in!

You’d almost want to reduct everything and fill the basement in. Other than that, it’s a delightful house! You could rent it out to hunters (boo) or just as a cabin get away.

stanleybmanly's avatar

It is a crazy idea. You want to jump into the landlord business, the contracting business and the real estate business, and all at the same time. All three enterprises are notorious for pitfalls, and the chances of you (who hate remodeling) to pull this off are daunting. The entire scheme hinges on finding the perfect tenant with considerable skills, along with a vision of the project which coincides with your own. You want to have the house built without the trouble of having to oversee and manage the work. You’ll never get away with it. I don’t want to throw water in your face. But if you hate remodeling and don’t want to hire a contractor outright, hang onto your 75 grand.

Dutchess_III's avatar

@stanleybmanly has a point. I mean, what about after your tenant is done remodeling? You’d have to begin charging rent of at least $650 just to make the mortgage payment. $1000 would be better.

I love dreams.

LuckyGuy's avatar

It all hinges upon getting the right tenant: someone handy, with time, and bordering on homeless – and willing to live in this climate. From Nov until March it is pretty miserable and snowy here.
People do cross county ski on the creek. It goes out into a bay and then to Lake Ontario. This is one of the best places on the planet for bird watching.

jca's avatar

It might be cheaper to buy it, knock it down and put up a new, cheaply done but efficient house. It sounds like a nice piece of property.

gailcalled's avatar

^^ That was my thought, also. Can you talk the bank down from the 75K, salvage the good stuff like the kitchen cabinets, stair railings and posts, and the appliances and bathroom fixtures and just raze the thing? The land looks nice. The creek seems alarmingly close from one of the windows in your photos. The condition of the basement is beyond alarming. It looks as though the creature from the deep is lurking there…just waiting.

Why did the previous owner give up his dream and have the bank foreclose?

CWOTUS's avatar

Well, you have to know that I do love water frontage, so that’s a huge plus. That’s a good piece of land to go with it – and for that price you could barely buy a building lot in Connecticut (I realize that your valuations are different there, but still) – and it’s so nice and green right now. The land itself is hugely attractive.

However… if that water isn’t smelling to high heaven already, then it soon will be. I’ve seen algae blooms in still water before, but I’ve usually smelled them far sooner than I’ve seen them, and for longer, too. It’s nice that you’ll have a place for a dock – or more! – but the dock I saw in the photo was a ruin. More demo work.

The latest inspection sticker visible for the furnace dates from 1996, and the insulation showing in the basement is in tatters.

Is there a broken floor joist in one of the basement photos? (The photo next to the inspection sticker and above the wood stove is the one I’m seeing – also with a lot of festooned insulation. The joist with the hook screwed in seems to be broken or disconnected in the foreground.)

And I can’t get away from the wet basement. Wet in the summer would indicate that this is a chronic condition. (My sump pump is also invaluable during the fall through spring, but in summer – since late May, in fact – I could have it removed for the season.) So I’d be looking at a continuous backup for that, and not planning on anything valuable in the basement.

I think it’s a pipe dream to expect someone to just fall in your lap that way: desperate for a place to stay and with the skills you need and willing to do things your way at a pace that you can live with. Oh, and willing to stay long enough to make a difference and won’t steal your materials, tools, etc. and take off in the middle of the night sometime.

If the land is worth that much to you, then by all means buy for the land, but anything you get from “others” remodeling or fixing up the house would be a lucky accident. More than likely, it will become a project for you, and an expensive one at that. If you’re willing to change your mind about making a foray into remodeling yourself, and if you have the money available so that the purchase doesn’t stretch you into a red zone financially, then give it a whirl. I just wouldn’t expect it to pay off without a ton of sweat from you.

LuckyGuy's avatar

Oh…. okay… The voices of reason….

The rumor is the previous owners did not live there. They mortgaged it to the hilt and spent a lot of time and effort fixing it up. But they ran out of money and enthusiasm. They were working at other jobs and could not spend the time and carry the expense any more. Meanwhile the taxes and utilities were killing them.
They just gave up.

I sure to like the land…. but I am not willing to do this as a project. I am already in over my head with work.

CWOTUS's avatar

And now for an opposing view (since I can argue either side of many questions), here’s a way that it might just work:

Depending on land valuations in your area, and the value of this land on its own, the cost of the deal could make it work, IF you can promote it to someone from a higher cost of living area (such as downstate NY, CT, NJ, for example) and who is looking to cash out of a paid-for home and maybe retire in the country.

I don’t know what the median house price is in CT, but I do not live in a palace by any means, and this place could be sold as-is for twice the ask on your proposed estate. With a little time, effort and money on my part, I could doll this place up and sell for 3X what you’re thinking of buying. So to someone like me – if you can find my rough equivalent to promote this to: nearing or in retirement; paid-up mortgage; looking for a place in the country, etc. – this would be an attractive offer: Cash out of the high-cost area, walk away with cash from the equity in the sale, and then contract to fix up that place (or subdivide and build another house, or move a mobile home on the land to live in while whatever major renovations are completed), and still have money left over.

So you might only have to buy the place, make it at least habitable, and then promote, promote, promote – assuming it’s still a better deal to a potential buyer than other properties in the area. That’s always the thing: How does it look against comps?

rojo's avatar

The water in the basement still bothers me but I am from Texas and we don’t have a lot of them around here. Is this common in basements?

LuckyGuy's avatar

It is very common to have sump pumps in the basement here. Houses built around the 1900s have basements that look just like that Both of my neighbors have basements with a little standing water. One house lets the water flow in on one side of the basement an out on the other side. the other has a sump pump but the floor does not all slope toward it. Houses were built with cisterns that held water. They had to be built indoors since it is so cold in the winter. We can go the entire month of January without ever getting above freezing. This place is no different.
I’m guessing rodents had the run of the place for several months. They do damage to insulation.

Housing prices in Western NY are some of the lowest in the country. You get a lot of value for your dollar.

Dutchess_III's avatar

I remember coming home to our house in Wichita once, and water was just pouring out of the sump drain into the driveway. My heart sumped sunk….

LuckyGuy's avatar

I have three pumps in my crock! An electric pedestal pump that empties into my drain tile. If that fails, I have a submersible that is sitting at a level about 1 foot higher that drains into a pipe on the surface. That is plugged into a 1500Watt inverter attached to a car battery with a trickle charger.
AND I have a battery operated pump that kicks in if the water gets above the submersible.

If I lose power, the first battery powers the submersible pump. If that fails the battery pump takes over. There is always water in the crock. but the pump might only go a couple of times a day. In the spring after heavy downpours it will run 100 to 150 times per day.
All that assumes my generator is not working. It always works.

rojo's avatar

I went caving a couple of times at a place outside of Lampasas. There was an old stone home that was build, I believe, in the mid-1800’s. Coming out of a nearby cliff face was a small spring that ran year round. Sometime during the past, probably when the house was built, they had constructed a stone lined trough that channeled the stream under the back of the house and out the front. In the kitchen was a small trap-door that when lifted exposed the rock trough providing the occupants with fresh running water 24/7. I thought it was an inspired innovation. But the best part was once it came out from under the house and into the front yard the previous owners had excavated a large rock lined pool that was filled automatically from the stream. The water filled the pool to a depth of about 5’ then flowed over the far end and continued its journey down the valley.
I loved that place.
I understand some famous actor had purchased it years ago. I would love to go back and see it once again. I would also like to get back into some of the caves. They were small but memorable.

LuckyGuy's avatar

@rojo That does sound fun! Clearly you are talking about a place with a much warmer climate.

wildpotato's avatar

This is an extremely attractive idea to me and I’m certain would be to others in my general position (young, coupled, fleeing the city for the country, handy). I think this could work well if you found the right people – but it has the potential to become a nightmare with the wrong people, as many have pointed out above.

I see deals like this offered on craigslist from time to time. Might be worth throwing an ad up and seeing what kind of nibbles you get. It also reminds me of how the WWOOF deals work, though that program is obviously geared toward agriculture and not construction. But maybe there is another umbrella organization that offers some sort of structure, accountability, guidelines, application, vetting, etc. like WWOOF does. In MA there’s also a farm apprentice program kind of like WWOOF but run by the state. Maybe your state has something similar that is construction-oriented or that you could stretch to cover your proposed situation.

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