First Investment Idea - Tell me all the holes

Member since 2025 · 6 posts · 2 votes

I want to purchase my sisters house as my first investment. It would be a live in rental.

I would have one bedroom to myself with access to the common areas. I would rent the house to her. She gets the master bedroom and my nephew gets the third room. She would have access to all the common areas as well.

The house is valued at $320k 'ish. I can get her to sell to me for the current mortgage balance of$150k'ish. I can leverage my WLI cash value to purchase it outside the banking system.

The goal is to purchase it in a land trust or llc. Use it to gain some experience as a landlord and in two years leverage the equity to purchase a duplex. And of course, take advantage of the tax benefits along side my current business income.

Viability of the idea?

Pros and cons?

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Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

It sounds like a single family house where you will be living in the house(personal use).

Therefore, you may not be getting the tax benefits you think you are.

Consult an accountant.

I am not sure why your sister would agree to this as well, she is losing $170,000 in this transaction and she faces the possibility of you increasing her rent.

You also have to charge market rent or close to market rent or it is all deemed personal use.

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Preston DeanBusiness Member
Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
1y
Hi @Jose Saladin

The deed would have to be transferred into your name like a normal RE closing + closing costs and other fees. Sounds like she has a loan on the property still so the only way to get the deed into your name is to have the loan paid off like normal. unless she has an assumable FHA loan.
Is the loan assumable?
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Jose Saladin
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Member since 2025 · 6 posts · 2 votes
1y
Thank you for your reply Preston.
The idea is to pay off her mortgage by leveraging my cash value life insurance. So all ownership documents will be in my name, the llc's name or the land trusts name.
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Kristin Flores-Brockman
Real Estate Agent · Fort Worth, TX · Member since 2021 · 142 posts · 59 votes
1y
Quote from @Jose Saladin:

I want to purchase my sisters house as my first investment. It would be a live in rental.
I would have one bedroom to myself with access to the common areas. I would rent the house to her. She gets the master bedroom and my nephew gets the third room. She would have access to all the common areas as well.
The house is valued at $320k 'ish. I can get her to sell to me for the current mortgage balance of$150k'ish. I can leverage my WLI cash value to purchase it outside the banking system.
The goal is to purchase it in a land trust or llc. Use it to gain some experience as a landlord and in two years leverage the equity to purchase a duplex. And of course, take advantage of the tax benefits along side my current business income.
Viability of the idea?
Pros and cons?

So she is going to sell it to you only to rent it back?
Owning an asset is never a bad idea, especially if it's income producing.
I would speak to a CPA about using cash from a WLI policy.
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Jose Saladin
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Member since 2025 · 6 posts · 2 votes
1y

So she is going to sell it to you only to rent it back?

Absolutely!
Me purchasing it and renting it out to her turns it into an investment property thatvallows me to take advantage of all the tax benefits that come with it.
She may lose the primary residence mortgage benefits she has, but I think what we achieve with the conversion outweighs the loss.
Cashflow would be immediate and allow for quick savings growth for the next purchase. Together with the equity that the house will have (heloc or refinance).

No one has provided details to knocked down the idea yet, so I'm leaning in the doable direction.
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Ty CouttsBusiness Member
Lender · Denver, CO · Member since 2022 · 467 posts · 230 votes
1y
Hi Jose
Overall, your plan is viable, especially with significant equity and an unconventional financing option (WLI cash value). The main risks I would say to watch out for are any family dynamic issues that could arise as things like this could lead to issues that didn't exist previously. Then being aware of the complexity of structuring the property correctly for long-term goals is important. I suggest consulting with a real estate attorney to ensure proper structuring of the LLC/land trust and review the tax and insurance implications. If you have any more questions, feel free to DM me.

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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
1y
It sounds like a single family house where you will be living in the house(personal use).

Therefore, you may not be getting the tax benefits you think you are.

Consult an accountant.

I am not sure why your sister would agree to this as well, she is losing $170,000 in this transaction and she faces the possibility of you increasing her rent.

You also have to charge market rent or close to market rent or it is all deemed personal use.
[email protected]917-280-8544
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
1y
@Jose Saladin Purchasing your sister’s home as a live-in rental offers instant equity (~$170K), tax benefits, and landlord experience, making it a solid first step into real estate investing. Buying at the mortgage balance (~$150K) positions is under the fair market value and can trigger gift tax rules.

Using a Whole Life Insurance (WLI) loan avoids banks but accrues interest, potentially reducing policy benefits—compare this with other financing options like HELOC or seller financing. Tax-wise, only the rented portion is deductible, and depreciation recapture applies on sale, increasing taxable gains. Renting to a family can lead to disputes, so a formal lease is essential for professionalism. If not rented at fair market rent, this property will just count as your residence, not a rental for tax purposes.

Structuring the property under an LLC or land trust could trigger a due-on-sale clause, so check with the lender before proceeding.

To minimize risk, consult a CPA for tax strategy, weigh financing costs, and draft a legal rental agreement. If structured correctly, this could be a strategic first step toward future multifamily investments.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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Jose Saladin
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Member since 2025 · 6 posts · 2 votes
1y
Quote from @Ashish Acharya:

@Jose Saladin Purchasing your sister’s home as a live-in rental offers instant equity (~$170K), tax benefits, and landlord experience, making it a solid first step into real estate investing. Buying at the mortgage balance (~$150K) positions is under the fair market value and can trigger gift tax rules.
--- Once I'm ready to make the move, I can speak with a lawyer and a RE Tax Accountant to find out what's the lowest allowable to avoid that trigger. And have her provide seller financing for the difference.---

Using a Whole Life Insurance (WLI) loan avoids banks but accrues interest, potentially reducing policy benefits—compare this with other financing options like HELOC or seller financing.
---It absolutely accrues interest, but there are so many more benefits to using it than going with a Heloc.
•Pausing payments if necessary
•While building home equity with loan paydown from rental income, I'm also rebuilding the equity within my WLI with the same rental plus my current active business. And the cash value keeps growing in spite of the loan---
Tax-wise, only the rented portion is deductible, and depreciation recapture applies on sale, increasing taxable gains.

---This is 100% a forever buy. I will definitely get tax advise on what I will be able to deduct before I make a move on this idea.---
Renting to a family can lead to disputes, so a formal lease is essential for professionalism. If not rented at fair market rent, this property will just count as your residence, not a rental for tax purposes
---I agree 100%. This will have full legal paperwork and rent. While my sister and I will not have any issues based on our history and lives, the goal is to use this property as the learning ground for the final outcome: four duplexes---

Structuring the property under an LLC or land trust could trigger a due-on-sale clause, so check with the lender before proceeding.
---The way my mind is thinking, this should be eliminated by paying off the mortgage with the WLI cash value policy loan.---

To minimize risk, consult a CPA for tax strategy, weigh financing costs, and draft a legal rental agreement. If structured correctly, this could be a strategic first step toward future multifamily investments.
---Before I make any move, I will be consulting a RE Attorney and RE Accountant. The purpose of tgis post is to get an initial feel regarding the viability of this idea---
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thank you all for the replies.

Ashish. I truly appreciate the time you took to break things down the way you did. It's what I was hoping to get here on BP Forums.

I have replied to your comments within the quoted text above. In Bold Italic, between the dashes. Please note that my replies are just my thought process while I'm learning. In no way am I trying to contradict your statements. On the contrary, hoping to get any of them shot down if they need to be, so I can learn from it.

Anyone that finds any other hole, please don't hesitate to chime in.

Thanks again to all.

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