Should I buy my parent's house for the equity?

[Nicholas Rice]

Hey BP! I am just starting out on my real estate investment journey and I need some advice. My wife and I have the opportunity to buy my mother-in-law's house for a good deal. She is willing to sell it us for $250k, and it is worth around $320k. Initially, I wanted to use a gift of equity as a down payment but then I learned that I cannot use a gift of equity on an investment property. So now my plan is to put 20% down on the house, rent it out, and refinance later to use that equity on another deal. What's holding me back is that it won't cash flow very well. It is a 4 bed 3 bath in Suffolk, VA. Similar homes are renting for $1800-1900. I ran the numbers on the BP calculator and I came up with $145 monthly cash flow and a 3% cash on cash ROI. Also, that is including property management because I live in Wisconsin and do not plan to manage my first property from that distance. So what do you think? Is the small cash flow worth the instant equity we will gain in this deal? Or should I hold out and use the down payment for something that gets a better return on investment? Thanks for reading!

[Guillaume D.]

Here an idea. You could find a way to buy it using private money at 250k. 

A few days later, just ask the bank to finance the property so they will finance base on the fair market value of the house instead of financing on the original purchase price. You would only pay interest for a short period of time to the private lender (don't forget to consider possible penalties), but you would probably get financing from the bank that is equal or over the 250k you paid for. This way, you could potentially have the house with no money tied up into it and use your 20% down money to buy another property.

This kind of strategy works well here in Canada, but I cannot confirm for the US market as banks tend to be a little bit different. Maybe other BP members can confirm if it would be possible or not.