CA Newbie:Buying New Home For Parents and Leveraging Current Home

[Bryant To]

Hi all, 

A little bit about myself, I'm a newbie ibased n San Diego, CA. I've been listening to podcasts and trying to educate myself for a while, but have been stuck in analysis paralysis with all the shiny paths I could take in real estate. 

I'm currently in the phase of educating myself with regards to long-distance investing (BRRRR) in the midwest, but before I move in that direction, I wanted to buy a nice, new home for my parents. I realize this is a non-investment property, but it was an eventual goal of mine and they are nearing retirement age so I don't want to wait until they're too old to buy them a home.

That said, I have a lump sum saved up (and financial support from my parents) to buy a non-investment property. 

 - Between me and my parents, we can afford to do a conventional owner-occupied loan. But out of curiosity, I'm wondering if there might be a smart/creative way I can leverage my parent's current home (which is fully paid off and in a nice area of San Diego)?

- I'm not sure how appealing my parent's home is for a renter. Some of the interior is a bit outdated (namely bathrooms) but they do function fine, so I'm not sure if it's necessary to rehab this. Should I have someone (I would guess an investor-friendly contractor?) take a look at the house? 

I would appreciate any insight/constructive criticism on this! :) 

Regards,

Bryant 

[Andy Eakes]

Hey Bryant! That is so awesome you want to get your parents a new home! And you have a few options..

It sounds like your parents own their home and it's paid off correct? If so, then you could do a 1031 exchange on the house if you are not too tied to the home. Essentially this means you take their existing property and exchange it for a home of equal value without having to pay capital gains tax and any other federal income taxes (I am not a CPA but I live in San Diego as well and can recommend a great CPA who does a ton of 1031 exchanges and could explain it much better!). Then you wouldn't have to pay anything and you could take that savings you planned to use for this property and use it to buy up investment properties in the mid-west.  

If that is something you aren't interested in, thankfully we live in San Diego! People are going to want to live here and pay rent. And with the housing crisis, San Diego has eased restrictions on adding ADUs to your property. If you were up for adding another building to your parents property (or even converting their garage or another separate building they may have), that could be even more income and with your parents house paid off and tenants paying off the utilities, the only bills would be property taxes. You could have a pretty nice cash flow! But be careful, if your renters can't pay rent for whatever reason, you are unable to evict anyone until September.

If you wanted to fix up the house and have it refinanced as well (BRRRR it), that's a great option! With a cash out refinance, you can take out up to 80% of the home's equity and put it toward another property. My parents just refinanced their home in San Diego and got a 2.1% interest rate! Unheard of. You could pull out that cash and buy a new home for your parents and have a low enough interest rate where you could positively cash flow with renters. It's already been said that the rates won't go up until the end of the year, so you have some time. But don't wait too long with this too because many people are refinancing right now and so lenders are very busy!

You have a ton of options thankfully. And you are sitting on a lot of money with your parents house. I would consider using the equity in your parents house to your favor! I hope that helps!