Assume Mortgage, Rehab, and Rent

7 Replies

BP First Post.

I'm looking into my first investment. The mortgage would be assumed from my parents. Currently they have a $1500 mortgage. SFH 4 Bed 3 Bath.

The property can rent for $2400.

I would need to rehab the property for 15K-20K. Closer to 15K, but I always plan for snags. 

Utilities would be handled by tenant.

Capex would be budgeted for 150/Mo. I'm not sure if this is high or low considering I plan on fixing anything old with the rehab.

Taxes/insurance 100$ a month.

Interesting situation because I don't need put any money down on the mortgage, it just gets assumed to me. I really just need to make the property rent-able and keep my rehab costs down to see a large CoC.

Being new at this, I'm sure I'm missing some considerations. Any opinions.

Be sure to calculate all expenses - mortgage, taxes, insurance, landscaping, municipal rental license fees and garbage collection fees, HOA fees, etc. Will tenants also pay water/sewer bills ? Also add in a 10% monthly reserve for maintenance. Tell Mom and Dad to get out their checkbook and review each and every expenses that they have. You'll find some that you forgot. Use a rental calculator and/or review the numbers with a CPA.

Also, don't be referring to it as "assuming" unless it is an FHA, you plan on living there, and you are actually planning to apply to their bank to actually assume the mtg, and remove them from the mtg. Otherwise you are buying sub2, and the loan remains in their name.

Very good point Wayne.  Ashan - By "sub2" Wayne means "subject to" i.e. subject to the terms of their mortgage. 

@Wayne Brooks , I've done a good amount of research and I wouldn't be doing anything with a FHA loan. I do believe I am referring to a mortgage assumption that exempts the due on sale clause through the federal Garn-St. Germain Depository Institutions Act of 1982. The act exempts me through a parent transferring a mortgage to a child.

@Account Closed I would want to maintain the terms of their mortgage as it was not paid as FHA and has a low mortgage payment for area and I do not need any money down to take on the loan. This would mean I am effectively financing a mortgage for the price of rehabing the property. On the rental side. Isn't capex the maintenance cost?

Maintenance costs are not necessarily capital expenditures. But they kind of blend together sometimes. Your reserve should include both. Capex confers a benefit on the property over a long period e.g. installing a roof, replacing a driveway. Maintenance costs confer a short term benefit e.g. the landscaper cuts the grass but next week it has to be cut again.

@Ahsan Lake Just a clarification, even if it is a Garn St Germain exemption, it is a "transfer", not an "assumption", and I'm not sure about the parents remaining liability.

Thanks for posting this.  I am considering doing the same thing for my Mom.  Is there no way to remove the parents liability?

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