How to buy property from father
I would like some thoughts/assistance on what to do with a scenario that I am currently facing. My father has a house located in Ft Lauderdale, about 10 minutes from airport and close to Las Olas and Hard Rock hotel. Its an older community but from looking at AIRDNA its not a bad place for a Airbnb. My father is retired 80 years old, he is on a fixed income and only makes like $800 from his social security. He has a house that he still owes $200k w/ %4.5 and 30 years left on mortgage(he has been refinancing without telling us). Anyways, the house he currently has will be appraised anywhere from 425k at low end to 500k high end. We want to rehab the home which will be about 30k it just needs some updates and also with that we can furnish the house. But we also want to give my father 50k so he can pay his car off, and bunch of credit cards that he has not told us about. I could buy the home from him but then I wouldn't be able to get any of that cash. He does not qualify for heloc due to his income. Is there anything I can do, besides just buy the house from him? I was hoping to do a cash refi but not sure if that is an option with his name still on the deed and mortgage. Would love any inputs/thoughts on this scenario.
He could do a HELOC or a cash out refi and you could "cosign" for him as a non-occupying co-borrower. This will allow you to tap into the equity to complete the rehab.
You haven't made it clear what the end game is. Does your father need any of the proceeds of this home to fund his retirement? If so, the above plan is a fine one. You'll just need to carry the payment a few months until the home sells.
Scott, thank you for the input. When I asked about a Heloc, the bank stated that he does not earn enough money to qualify. I have not heard about the non-occupying co-borrower so I will talk to a local bank and discuss it.
The end game is, that my father will be living with either my brother and I. We want to rehab the home then turn it into an AIRBNB, also have his bills paid off, lastly we will give him some of the $$ we make of the airbnb. The good thing about his property, he already has a LTR in the back of his house and she pays us 1k a month, so that will help towards the mortgage.
Let me know if this makes sense to you.
There a a few options you can take to make this work out, you just need to pick what is best for your family's $ situation and timeline. If your goal is to force equity and rent it out, you'll need a refi to cover the costs for rehab unless you plan on using your own cash for rehab and using the cash flow to pay you back over time. More than likely your father is going to be unable to qualify for a refi, and like referenced above- someone will need to come on the loan to make it happen. Hard money is always an option for the rehab if the family doesn't have the $ to do so. But the end game of getting the cash out makes it somewhat cut and try in my opinion. After the current loan value, est rehab and ARV, and after the $50k to pay off your dads car… you "should" still have extra money to either pull out or leave in the house after 80%LTV. Hopefully this helps!
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Also make sure to keep the home in your fathers name to avoid 10’s of thousands in income tax there’s no need to pay. Make sure his will is up to date and see if your state offers a TOD transfer on death title to avoid probate.
Your father may qualify for a reverse mortgage, which does not have the same DTI requirements as a conventional mortgage. He could potenially accomplish all of the things you are hoping to accomplish without having to transfer the property to you and cause a taxable event. DM me if you would like to contact me directly.
Thank you! Great input from everyone. I truly appreciate it.
A bridge cash-out refinance can be a suitable choice here. But your father would not be allowed to live in the property and you'd not be permitted to use the cash out proceeds to pay off his car or credit card debt (only business / REI expenses). So more so ideal for renovating the property and converting its use to business purposed.
Someone also mentioned a reverse mortgage - a good idea if you don't go the STR route and instead want to supplement your father with income by tapping into that equity.
Quit claim it to an LLC that your father has an interest in - then refinance it to a bridge w/rehab.
Once rehab complete, refinance it to long term debt.
With the current leverage should be a no brainer for any hard money company.
Assuming a $475k final valuation - you should have enough equity at 75% to pay off off rehab loan and get your father the $50k he needs once cash out refi is complete.
@Pablo Espin What kind of condition is the property in? Have you looked into being a non occupant co borrower?
Sounds like a reverse mortgage would be the best thing to tap into equity here.
Hey Pablo! I cant give you much better advice than these other guys have already, but I live in the same area as your father and would gladly run a comparative market analysis for you to have a better understanding of what it would sell for if thats the route you decided to take
I am doing a cash out refi on a similar scenario now with conventional financing.
You can take over the note via refinance only if the deed is QCD over to your name prior to the title commitment being pulled for your refi.
Each conventional lender I spoke with requires that the deed be in the new borrower's name before closing.
Essentially, the father is transferring ownership to his son and the son is refinancing into the loan which will now be in the son's name.
Doing this isn't particularly hard, but it does require timing and diligence.
Cheers!