Guidance Needed--Purchasing 1st Home from Parent

[Andres Montoya]

My father recently passed away, and my mother is looking to sell one of the properties that she has in her survivor's trust in order to reduce some of her responsibilities, to reduce the value of her estate, as well as to give me a leg up in life.  The prospect is exciting to me, and as of the last week or so, I've dived into the many details that would be involved with the transfer as well as how to make ownership of the home work best for me.  My hope is to get some advice from those on these forums who are much more knowledgeable than I am (I would be a first-time property owner).  Basically, what I'd like to know is: What would you do in my particular situation?

With that said, here are some of the details of the situation ...

-The property is a duplex located in the Bay Area, CA, smack dab in the middle of all the major tech companies, and my mom owns it outright

-I currently live in one of the rooms in one of the units, and manage the property (I've done this for 2 years now)

-Each unit is 1210 ft^2 with 3 bedrooms, two baths, and a garage

-Both units are in very good condition, comsmetically and structurally; although, they were built around 1970

-The sale price would be approximately 350k, while the FMV of the home is 1.72M (the difference would be recorded as a gift, of course, thereby reducing the lifetime exclusion amount)

-The sale would be done through a term-based promissory note with the appropriate AFR at the date of sale (currently 2.8% for loans of more than 9 years)

-We have just enough remaining parent-child exclusion amount to prevent the property taxes from going up after the transfer (current property taxes based on an assessed value of 650k)

-Since my parents purchased the property in 2004, there has never been a shortage of good tenants (there are hundreds of high-earning professionals in engineering and tech clamoring to find a place to live here)

-Each unit brings in $3,000/mo, and many say we should be getting more (since I live in one of the rooms, however, the total cash flow for both units is $6000 - $700 = $5300/mo)

-After the purchase, I would continue to live in one of the rooms; therefore, it would be my primary residence, which, as far as I know, would allow me to claim a homeowner's exemption, ...

Hopefully, the above details are enough to be able to form some opinions.  Overall, I recognize the great benefit I would get from the sale, and I am very grateful to my parents for their providence and generosity.  Here are some of the larger questions that I have:

-Should the term-based promissory note be for 30 years, or should I try to pull off a 9-year loan? With the 30-year loan (~2.8% AFR), the cash flow after property taxes and HOI would be ~$2500/mo, and the total interest paid over the life of the loan would be $164,731.  With the 9-year loan (~2.1% AFR), the cash flow after property taxes and HOI would be ~$700/mo, and the total interest paid over the life of the loan would be only $33,807.  My normal job is stable and currently allows me to save about 45k per year; so, I don't think that I'd be in danger of not being able to meet these higher payment obligations should rental rates go a bit lower and the property didn't carry itself.  On the other hand, I see that I could take out the 30-year loan and pay on it as if it were a 9-year loan.  The interest rate would be ~0.7% higher; but, it would give me more flexibility. 

-Should I be very interested in making the equity work for me, shortly after the purchase (1.72M - 450k = 1.27M)?  For example, should I quickly be looking to use the equity to purchase another rental home? Again, this is my first property.  However, my parents have owned about 15, and therefore have some knowledge about property ownership (albeit, only my mother remains now, and she does not know as much as my dad did).  Moreover, my older brother owns a home, and owns a small home construction business as well.  As for me, I'm the type who is more inclined to do research, crunch numbers, and figure out legal/related issues; so, there is some capability if I were to look into using the equity for another home purchase.

-Would the decision to use the equity to purchase another home be significantly affected by whether I go with the 30-year vs 15-year loan?  It seems that the 30-year loan would give me cash more quickly, which could then be used to accumulate enough for another down payment for another home purchase  in the not-too-distant future as well as to further prove to lenders that my income is substantial and stable enough to be able to pay back a home equity loan.

Anyway, hopefully I didn't muddle things up, confuse facts, or not present enough details.  I've gone from knowing absolutely nothing to where I'm at now in the course of only a week or so.  I'd love to hear what those who are much more experienced than me would do in my position.  Thanks in advance!