Newbie: Creative Financing
Hi! Thanks for taking the time to read my post and any advice is greatly appreciated!
My wife and I are newbie investors in Southern California. We are looking into investing by buying Single and Multi-Family Residences through the BRRRR strategy. My mom would likely to be our first client. This is great but nervous because I want to do right by my mom.
This is the situation. My mom lives in an attached 2-story 3 bedroom, 2 1/2 bath townhome. She has about $130k in equity. The townhome no longer works for her because of the stairs so she would like to get into a single-story home.
I spoke with a lender and he advised us to do a cash out non-owner-occupied refinance for my mom’s home. My mom would then use that cash to buy another home as owner occupied and I would co-sign the second property. Then, the townhome I would rent out and manage that property. This has me a bit perplexed because my wife and I want to be the investor and my mom doesn’t want a second property under her name. She does need a home to stay under her name so she can continue claiming taxes at the end of the year.
My thoughts were to have my mom do a refinance so she can lower her interest rate from 5.5 then do a HELOC. HELOC would be for the money down on the second property my wife and I would buy, and rehab then rent it to my mom. The townhome we would rent out and I would manage it.
Any advice, feedback and/or suggestions on options we have are greatly appreciated.
I'm not sure where the opportunity is in this scenario. I get the sense you decide you wanted to get into investing, looked around and saw your mom's townhouse and are now trying to make a square peg fit into a round hole. It also sounds like she has no interest in having a rental and she's being convinced to be your guinea pig.
From my reading of your question, I think your mom is a traditional home buyer (sell her current place and buy a new one). I think she needs to find a new place that fits her needs and get the best financing she can. Then, if she has money left over and she wants to act as a private lender, she can invest in an opportunity you find.
I think if you try to do all sorts of financing gymnastics to try and make something work, it can turn ugly. And if your mom isn't totally on board (i.e. she doesn't want a rental property), it's going to cause more issues than just possibly losing some money.
I think borrowing money from older people is riskier than borrowing from younger people. If a 30 year old loses 60k, they've got lots of time to make it up. If a 65year told loses 60k, they may not have a place to live much longer.
Good luck.