I was speaking with a friend recently about her parents home. The mortgage was only in the Dad's name who has passed away but her Mom was on the house. She was planning on walking away but then thought that maybe she should have someone come by first to make sure that was a good plan, which is very smart!
First thing to find out is will assets of Dad's be taken to pay the mortgage? In this case, no, the life insurance is really the only thing that is in play and it all goes to Mom. So she can walk away and give the house to the bank if that is the best recourse.
The key to making this decision is what is owed to the bank, how much work needs to be done, and what are the "comps" or comparable recent sales. First we needed to do a walkthrough of the house. In this area of Baltimore County, the sales vary widely due to age and condition. You have homes built in the 1920s through the 1980s primarily, all different styles and sizes.
When you're looking at a project like this, you want to look at it as if you are a real estate investor. The aquisition price is what is owed to the bank. In this case we are looking at about $157k. This amount will go up if no payments are being made, so that is something that will impact your project. If the work is going to take 4 months and then it takes 2 months to get a buyer, you're looking at 6 extra payments added to this balance for payoff, so let's say $165k.
This particular home was built in 1928. It has been updated throughout the years of course and like most homes, it will need work to be done to it in order to sell it for top dollar. After looking at "comps", I'm estimating that this house may be able to sell for $220k after we are done with the projects. That would not be totally renovated, but the repairs and some upgrades would be done.
First of all the roof needs repair or replacement. This is a photo from the back of the house where an unscrupulous contractor had taken advantage of them with a terrible roof repair. Where you see the missing shingles, there has been leaking into the house behind a closet. Mold is showing through to the other side of the drywall.
When you are choosing a contractor, make sure they are licensed and bonded and reputable. Unfortunately there are people who literally will come knocking on your door and offer you great deals to repair your roof or fix your driveway that will take advantage of you if you aren't familiar with home repairs.
They may be able to get away with just replacing the back end of the roof, but if they have to replace the entire roof, that's about $5000-$6000.
The drywall needs to be replaced in this closet and mold remediation done in the house. There's a local company, NZ Mold, that has a green product that will kill mold spores in your house. First you need to find the source of the water and stop it, then have them come in and spray. It's about $2 per square foot and they give you a lifetime warranty providing the water leak has been fixed.
I did not go into the attic of this home. There could be other issues there; animals (happens sometimes, rodents, squirrels, etc), plywood that needs replacing, etc.
The front door on this home needs at a minimum repair, possibly replacement. Repair wouldn't cost much, but replacement could be $1500. As you enter in the living room, it needs paint and trimwork. When you have dark paint, it can be a little more challenging to cover, but if you are able to do the work yourself, you can save a ton of money.
The bedrooms are dark also and for the house to show neutrally and more move-in ready, which gets you into the price range this house would need to be in, in order to get out from under it and make some money, you'll want to lighten up the paint to prepare for staging.
I think the electric may be a little sketchy and I'm not certain if it is up to code. If you don't have an electrician come out initially to check everything, electrical issues can/will come up during the home inspection. Plan on a minimum of a couple hundred dollars for minor fixes (reverse polarity, GFCIs), to $2000 if you need an entire new electrical box. Other potential issues are aluminum wiring, but that would be on much newer homes than this one.
Ideally in a house like this, you'd want to do a new kitchen, just plug and play because the layout is fine. There's a local company that can pull out the cabinets, and install new cabinets and granite counters in a kitchen this size for about $4500, which would make it really nice.
At a minimum, to get into the price range we would need to be in, the cabinets can be cleaned, new hardware installed (some are missing), and a new sink installed. The appliances are also old and should be replaced.
In this price range you do not need any fancy brand names or anything. You could look for scratch and dent stainless appliances that look good, or get a 4 piece Fridgedaire set for about $2000.
In this room there is also paint, cleaning, and trimwork that would need to be done.
In the living room there's also a window that was covered on the outside with siding but still shows on the inside and that would need to be covered. Quirky things like that are fine while you're living in your house but makes it hard to sell if you're trying to get top dollar for what it is.
Moving down the hallway into the full bathroom, it needs to be remodeled. The bathtub has spots that have worn and the tile has seen better days. The easiest thing to do in here is probably having a new surround put on the tub like Bathfitters does. The cost to do that is about $2000. Please excuse the blurry photo. The photos were taken for my own use during the evaluation so I could look back on them. The vanity and mirror would need to be replaced also but those 2 things are not expensive. You can get a decent vanity and mirror for about $300 and have someone come in and install them. Doing a remodel this way would probably be around $3000 give or take, which isn't bad really.
The HVAC system is also old in this house and would likely need to be replaced for a buyer to want to pay top dollar.
There are a few doors that need replacing or re-installing and a couple other areas of drywall work, some carpet to pull out, and a few other miscellaneous details. Another thing to remember when doing these projects is there will be other things coming up as you're working that you didn't anticipate. You'll want to budget for about 10% more than what you think you'll need and hope that you don't end up with any big surprises.
My recommendation was to not move foward with the projects; it's just too risky. This house will be a great project for an investor who pays in the neighborhood of $125k or so. I recommended that the seller contact the bank, explain what happened and see if they have any incentives available to her where she can hand over the keys and help them avoid a long, drawn-out foreclosure situation. In the past I've heard of banks doing keys for cash deals where the bank tells you when they want to take the house back, you stay in it and keep the utilities on so the house stays in good condition and then you sign paperwork to hand the house over to the bank and they give you money towards moving expenses. Not sure if any banks still do this but it's worth a call.
This owner did her due dillegence and has decided to walk away from the house. If you'd like a no-cost, no obligation consultation, give us a call for a walkthrough and evaluation to see what makes sense for you!