The Bank of Mom and Dad

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After being shut-out on a 4-unit that has been gutted, but needs to be finished, Mr. PFL and I had a brainstorming session about how to get more cash. It is clearly a seller’s market, and we need to be in a stronger position. We really only need a bridge-type loan to get us over the hump from buying a new place to selling our current home. We need about $325,000 in cash to be able to buy a multi-family property in a neighborhood where we want to live.

Currently, we are the back-up contract for an up/down duplex with a 2.5 car garage for $325,000. We offered $319,900 cash ($10,000 over asking price). I was actually able to show proof of funds from accounts that I have direct access to, including my two retirement accounts, the two HELOCs, the LLC’s checking account, my checking account and two joint checking accounts, and an available balance on my credit card. It obviously isn’t wise to use all of these accounts to buy a house, but it is comforting to know I could. Mr. PFL confirmed that he can easily take a $50,000 401(k) loan and he has around $30,000 in a taxable stock account that he can liquidate. It is still a stretch to get us to $325k, though.

That’s why I called my mom. And then talked to my dad. My mom inherited a good chunk of change when my grandfather passed about a year and a half ago (probably around $150,000). I’ve had enough discussions with my parents over the years to understand that they are very wary of the stock market. So, I wasn’t surprised to learn that they have over $100,000 in CDs making a solid 1% interest. The last time I remember asking my dad for money was more than a decade ago for $150 so I could purchase some Christmas presents. Bringing this idea up was not as difficult as I had expected and both of my parents were incredibly open to the idea of loaning us money for the short-term. We are able to offer a higher interest rate than their CDs. I’ve been honest about having almost $200,000 in HELOC credit available. I believe they are aware of the loan we did with Mr. PFL’s parents (which is similar, but a 10-year term on $30,000). I do NOT recommend this strategy for most people, though; there are so many articles out there about not borrowing/lending with family. But, at the same time, it can work.

Part B of this plan is to get our house ready to sell and to list it. I’ve set a tentative list date of April 21st. If we are in-contract within a week (which is entirely possible in our neighborhood, as long as we price right), that means we’d probably need to move out by the end of May. Ideally, it would be to our new place; otherwise, we are prepared to put things in storage and move to short-term housing. Our debt will be substantially reduced and we should have actual cash available. And we will be making a forward step, finally.

And The Search Continues

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Well, we were in contract for all of three days. I sent the termination over just before lunch. As soon as the inspector entered the property yesterday, I received a text message from him that said: “For your safety…I can’t let you in here.” When I called to follow-up, he reported that there was so much mold, a high-quality facemask would be mandatory to even make entry. I believe he used the words “dripping down the wall” to describe the level of mold. This is hurricane flood-level mold:

Even the “new roof and gutters” that were advertised in the listing were improperly installed or never finished - the downspouts point straight down into the ground, directly at the foundation. The foundation has suffered tremendously as a result. The “new roof” was added without first installing new boards to replace the missing/rotted ones, so the inspector was able to see the underside of the shingles while in the attic.

The most unfortunate part of this failed transaction is that this property is in a great location. We were willing and able to make a sizable investment, both monetarily and with sweat equity. But, in all reality, this property should probably be demolished.

Just some brief stats about this deal: The duplex was listed for sale 46 days ago for $140,000. The current owner purchased it for $32,000 in September, 2014. The listing proclaims that the “[s]eller has installed new roof, gutters, downspouts, front and back porch overhangs in November 2015. Property has been cleaned out, trees removed and is ready to have a buyer complete the restoration.” Since September, 2014, there have been renovations and new-builds surrounding this property. The new-build single-family homes within one block of this property have been selling around $300,000 for about the last year. I first called the agent about the property about three weeks ago and he reported that it was in a multiple-offer situation over list price. Then, on Monday, I noticed that there was a price-change to $120,000. I offered $80,000, and the seller countered at $105,000 on Tuesday. We agreed, with the purchase contingent on inspection within 5 days. The inspector was there Thursday afternoon, and I cancelled the contract on Friday morning. The inspector reports that he is going to call the listing agent about his concerns. For the record, the property has not been “cleaned out;” according to the inspector, it also contains junk and feces.