First Rental Property Purchase with a Twist - Financing

[Matthew Dekker]

Hey everyone, my business partner and I are trying to get our foot in the door with our first rental property. The single-family home we are looking at purchasing is currently owned by my business partner's father. He has been through the wringer it seems with this house. He took out a HELOC back in 2014 and has a balance of about $117,000 left on it. At that time, the house was valued at about $250,000. We plan on doing some renovations to the house to hopefully drive the value up. Since we have a bit of unique situation, my business partner's father wants to sell us the house, but for a discount. Our agreed upon sale price is going to be about $215,000. This will pay off the HELOC in the amount of $117,000 and the rest of the funds will be swung right back to my business partner and I to do those renovations. The rest of the equity in the house would then be purchased over time in an under-the-table deal between our business and my business partner's father. I feel like this would be a decent plan, except there is a twist. My business partner's father, the homeowner, filed for Chapter 13 bankruptcy a few years after he took out the HELOC. Long story short, he owes about $18,000 on the bankruptcy and once that is paid, the filing will be discharged. The sale of the house cannot legally go through until that filing is paid off in full. I know with this twist thrown in, it is probably not the ideal first rental property, but seeing as we would be purchasing for a discount, we still want to try to make it work. My business partner's father does not have the funds to pay off the $18K but we want to make a move ASAP. We would need to pay off that bankruptcy balance for him. We are trying to come up with ways to finance the whole thing. Some options have been thrown around such as using our personal funds to pay off the $18K, or taking a personal loan for the amount, then adjusting the mortgage to pay that off. Either way, that $18K will come out of my business partner's father's portion of the equity. Again, i know this is a unique situation but does anyone have any advice on how we could finance both the bankruptcy balance and structure the mortgage so that this could work? Any advice is appreciated. Thanks!