House hacking/live in flip purchase question

[Naren Gunasekera]

I have a somewhat unorthodox inquiry about a househacking/long term live in flip opportunity that I have. I was hoping to explore some options in terms of how to acquire the property.

For the last few years I have been renting a room in a condo from a family member. This family member is now going to retire and leave the country and offered to sell the condo to me.

The house is in somewhat bad shape and will require a full interior refurbishment. Back of the envelope calculation for this is 80k to 100k for redoing the kitchen, three bedrooms, replacing HVAC, first floor flooring, etc. I'm in southern California and trying to take into account the higher costs and pandemic bottlenecks in supplies. There's around 170k left on the mortgage. Condos are going for around 500-520k in my area for similar builds with reasonable to good updates. I have excellent credit, zero dti and have good income.

I might be able to get the home for around 250-280k because of the family angle and my family member's desire to move quickly. My quandary is how to fund it. I have about 20k if a down payment is required and the ability to borrow against my 401k for the repairs.

I'm looking at the following options:

1) A regular purchase through my credit union as a non-arms length purchase with a gift of equity letter. Concerns here are how appraisals look at things like kitchens with doors broken, rotten cabinets, etc., and time taken.

2) FHA 203k loan with refurbishment costs folded in. Concerns are the lack of lenders doing this kind of loan and lack of flexibility in choosing contractors and cost of the loan.

3) Hard money loan for purchase, use my money for the refurbishments and refinance once completed. I need to run the numbers on this but my main concern is lack of experience with this kind of thing. I have good cash flow with regard to income as I don't have any debt.

Has anyone made any similar purchases in Southern California and what approach did you take?

My long term goal is to rent the other rooms, reduce my living cost and use the additional cash flow to invest in RE and also potentially use a HELOC from the available credit as well for the same purpose. Potentially flip it in a few years as well (I'm aware of the cost basis issue with the gift equity purchase).

Thank you for reading my (quite long) question!