How to acquire Family Cabin to Run as Vacation Rental

Question

What you do?

My mom and I want to run the family cabin as a vacation rental this summer. She needs $400k (appraises for $660k) since wants to clear $100k in debt ($50k HELOC on cabin and a motorhome loan) she has and get into a different place. She’s on fixed income $3k/mo.

I have ~$40k cash to put in and clear, immaculate credit and $3k monthly W-2 income to cover costs while the business gets legs under it. I’m on the deed of my home but not the mortgage. We have around $180k in accessible equity there we could use. Not sure how to go about it. Up for creative options!

More details:

She is willing to pass on 40% of the value to me to work with as the place is sentimental and she will still get to use it as part of our deal. We found that many lenders will only loan 60% LTV anyway-may or may not be the actual case. The place is in a high wildfire risk zone so insurance is sketchy, maybe has something to do with lending restrictions. So I could pay $400k for the $660k cabin.

Mom inherited the place in 2020 when it was worth $250k. It appraised for $660k last summer. The amount taxable to her capital gains would be around $110k if sold for appraised value. My basis would be around $450k if I had to sell later so around $200k in table capital gains. The idea is to not sell. Legacy is important here.

• Lawyer suggested I inherit it rather than purchase but I’d like to free her of it and loan against it.
• I could buy or co-sign on her new place.
• We could use her current HELOC too and I make payments on that. It’s at 7%

How would you structure the deal?

William Hibbs · Answer

That all makes sense, and it sounds like you’re approaching it the right way, especially stress-testing occupancy and being conservative on insurance and cap ex.

One thing I’d focus on as you narrow in on the second home loan is that you’re making two decisions at once: 1. what’s cleanest for the deal 2. what’s most resilient for the balance sheet long-term

Second-home financing is often the least friction up front, but it can quietly lock in some constraints around future leverage, basis, and exit flexibility, especially given the insurance volatility.

Not saying it’s wrong at all, but it’s usually worth comparing it side-by-side against one alternative structure to make sure you’re choosing simplicity intentionally, not accidentally.

Chelsey Short · Answer

Yes it’s certainly complex. I have run it through pro forma and it should fly even at only 50% occupancy, which is typical of the area. I’ve estimated high on insurance and CapEx since the place is 30 years old. I don’t love that there’s so much emotion and sentimentality over this investment but I’m coming around and keep focusing on the business and data. I’m leaning on a second home loan over getting too creative.

William Hibbs · Answer

Hi Chelsey, this is definitely a complex situation, with the financing question, but also a mix of family, tax, insurance, and long-term ownership goals.

I’d split this up into multiple scenarios before structure:

1. control vs. liquidity – freeing your mom from the debt and payments without forcing a taxable event or losing long-term control

2. financing constraints – wildfire risk + LTV limits may dictate structure more than preference

3. tax timing – stepped-up basis vs. partial sale vs. debt-backed transfer all land very differently long term

4. operating reality – whether short-term rental cash flow actually supports debt after reserves and insurance volatility

A mistake I see in situations like this is jumping to a “creative” structure before modeling different scenarios side by side (sell vs. partial transfer vs. debt-only solutions). The best structure usually isn’t obvious until you do that.

Have you run this through any kind of full pro forma yet, or are you still at the conceptual stage?