House hacking by proxy

[Andrew Egerton]

Hi all, I posted this on the general REI forum but then stumbled on this house hacking forum so I'll post it here as well:

I am new to learning about REI and am looking to get some advice on a possible opportunity.

My parents are retiring in a year and are considering selling their house and buying or renting a place close to me and a place close to my siblings who live in another state. I recently started listening to BP podcasts and I got to thinking that I might be able to use their situation to kickstart my REI portfolio while also helping them with their goal of having a small place to live in both states. My thought was that I could buy a multi family near me with my parents as the primary owner/occupant and I would co-sign/finance. They would live in the property for a year such that we could qualify for an FHA loan with a low down payment. Then after a year or two I would buy them out of the loan and rinse and repeat by buying another long distance multi family near my siblings. I guess my first question would be is whether this strategy is allowed or am I missing something? Has anyone on here used a similar strategy?

Curious to hear your thoughts, thanks in advance!
-Andrew

[Brandon Weis]

One issue I see is when you "buy them out" of the loan, the whole loan will be due per the due on sale clause in the mortgage. The bank will likely not let you assume the note, especially if your parents are the one living there - not you. It is not the end of the world, you could get a new mortgage on the property to pay off that original loan, but it will then be treated as an investment property so you would need 20-25% down. If you use the same lender and have a relationship, they will probably let you use equity in the house as a "down payment" but if you put 3.5% down on an FHA loan, you likely will not have that much equity, so you will need a considerable amount of cash out of pocket to "take over" the loan.