How Do I Structure My First Deal

[Josh Deschene]

Hello All,

This is my first post and I will try to summarize as clearly as possible. I am looking for advise on how to structure a deal that involves my fiancé and I buying her parents 4-Plex house. I think I have a solution in mind but since this would be my first deal I may be missing something important. The added variable is my fiancé has a sister, whom her parents want to leave something to when they pass (they are 80 and 70 years old, respectively). 

Facts

1. The house is a 4-Plex in Webster, MA, with the largest apartment on ground level that is currently occupied by her parents.

2. (1) Apartment is currently rented without a lease.

3. The (2) remaining apartments are vacant and will need some work to be livable. 

4. The parents owe roughly $40k on the mortgage. 

5. I'm assuming the House is worth roughly $400k.

Goals

1. Parents: Want to be able to leave something to my fiancé and her sister when they pass away. All they have is their house. They also prefer not to move out since they are older and are comfortable where they are. 

2. Sister: Wants to make sure her parents are not taken advantage of. She prefers they sell the house right now, as is, and live off their profit. However, this would force them to move out, lose their current rental income, and have to pay rent off their limited salary. 

3. Us: We want to buy the property, fix up the (3) apartments not occupied by her parents to generate rental income.

Questions

My thoughts are to work out a deal where we purchase the property from her parents without taking a loan from bank. I have a HELOC open on my primary residence to fund any renovations. My thought is to structure a deal where we borrow her parents equity from them and pay them in monthly installments once we get the apartments rented. I see it as no different from borrowing from a bank. Her parents would have some income coming in with interest, and we wouldn't need a sizeable down payment to purchase the house. I also figured that when he parents do pass down the road, we could refinance through a bank and pay off the sister her half of the home, while still keeping the house and the rental income. At that time we could renovate the ground floor apartment and potentially turn it into (2) apartments for a total of (5).

My questions come down to how do we deal with the existing 40k mortgage, whether we can make it work so her parents aren't paying much in rent, if anything at all, and whether or not we set up any legal entity, like a trust to help the legal situation of paying off her sister down the road. 

Anyone who can provide useful advice would be appreciated. Happy to add more detail if necessary. Thanks in advance!