Buying Property With Equity Gift

5 Replies

Hi everybody! Long-time BP listener, but soon to be newbie investor. I would love any advice you guys have for me regarding my situation. So, I'm currently renting a single family home (3/2 1,800 sq ft) in the Cordova/Lakeland area, which is a suburb of Memphis, TN. My father is actually the owner of the property and has approached me about buying the house and would gift me the equity in the house if I agreed to purchase. The remaining balance on the mortgage is approx. $115,000 and comparable houses in the area that I've seen on Zillow have been selling lately for $160,000-180,000.

I'm really interested in leveraging this opportunity for my first step into real estate investing, but I need some help thinking this thing through and determining what numbers would make this make sense for me. Not sure if I should buy the house and rent it out, or use it as my primary residence and put the extra money I'd save each month towards saving for a down payment for another property.

I'm pretty young, mid-20's and am actually from the Memphis-area. I'm actually hoping to relocate out of state in the next year or two, but at the moment, I'm thinking that a buy-and-hold strategy is what I primarily want to use to build my portfolio. I welcome any advice you guys might have for me. Thanks!

Not a bad situation to be in. Is there an opportunity to increase the value of the property once you buy it, and thus have a higher ARV once you refinance (6 months after you buy)? If there is easy money to be made by fixing up the curb appeal or modernizing the kitchen then you would have even more equity after an appraisal/refinance to leverage. Something to consider! As far as using this property/opportunity (propertunity?) to leverage into the next one and expand your portfolio, what I would do if I were single & w/out kids is I would live in the property and rent out one of the rooms. It's a good way to save fast so you have both cash & equity to put into the next deal. I did this exact thing with my first house -- I bought the property at a discount, put about 30K into fixing it up and now the comps put me at about 80K in sweat equity. That is 50K I just made. Plus I was living with a discounted mortgage w/ the help of roommates. I can now buy another property and repeat the process if I find a similar situation.


I wish you the best of luck, and I hope my reply was helpful.


-Matt 

@Nicole Barnes Personally I would ya buy the property from your dad live in it for 6 months so you can get a 95% LTV for living in it as an owner occupant. Then with the equity I was able to refinance out go and buy another personal resided keep the one and rent it now and keep on house hacking and repeating.

@Nicole Barnes , you absolutely should buy this house! Assuming that the ARV is accurate and the house doesn't need a significant amount of work! There are so many options you have when you can buy deals like this with equity built in from day one! The strongest strategy in my opinion would be to live in this house as a primary residence and then tap the equity via a HELOC to use as downpayment funds on more rentals! With 50k in equity or more you could potentially purchase 2 if not 3 more homes. Put them all on 30 year fixed mortgages and use any cashflow to pay back the HELOC (true cash flow accounts for ALL of your expense factors: vacancy, maintenance, capex etc.) Being young is great because you can work and not rely on cash flow from your properties but you are building something now that will pay huge dividends in the future!

Thanks for the replies everybody! In y'alls opinions, at what point would the purchase not make sense? What's the lowest market value you'd accept for this type of deal, given a $115k mortgage and monthly rents on the lower end of the spectrum? I think a conservative estimate for monthly rental income could be $1200 since similar houses in my neighborhood are renting for $1300-$1400.

Originally posted by @Matt McKinney :

Not a bad situation to be in. Is there an opportunity to increase the value of the property once you buy it, and thus have a higher ARV once you refinance (6 months after you buy)? If there is easy money to be made by fixing up the curb appeal or modernizing the kitchen then you would have even more equity after an appraisal/refinance to leverage. Something to consider! As far as using this property/opportunity (propertunity?) to leverage into the next one and expand your portfolio, what I would do if I were single & w/out kids is I would live in the property and rent out one of the rooms. It's a good way to save fast so you have both cash & equity to put into the next deal. I did this exact thing with my first house -- I bought the property at a discount, put about 30K into fixing it up and now the comps put me at about 80K in sweat equity. That is 50K I just made. Plus I was living with a discounted mortgage w/ the help of roommates. I can now buy another property and repeat the process if I find a similar situation.

I wish you the best of luck, and I hope my reply was helpful.

-Matt 

 There's definitely value add opportunities within the house. After buying, I'd want to put a little money into updating the bathrooms a bit and making a few cosmetic changes. Those are really the only areas on the property where I'd prioritize making some changes. The house was built in 1995 and the bathrooms haven't been updated since. I believe the house actually might have been a custom build. The floor tiles are really nice. It's really the vanities, shower, tubs, and toilets that need some attention. I think I would put some low maintenance shrubs & perennials in the flower beds, get a couple of the windows repaired, and then just change out some of the fixtures within the house to match the finishes.