Condo for Parent: Buy Cash, or take Mortgage?

[Mariah Toulouse]

Hello all!

I suppose this is my introductory post, so here's the introduction: My name is Mariah.  I'm originally from Seattle, but currently live in Houston with my husband (who is originally from Detroit), our beautiful 1-year old daughter, and our two scruffy terrier-mix-mutts. Hubby and I have been fortunate enough to work abroad through our company, and lived in both Malaysia and Norway before returning to Houston in 2015.  We're early-mid 30s.

I'm hoping to get the Collective's advice on what we should do with a condo that we're going to buy for my father.  (Apologies in advance, this is long, but I wanted to include the detail because it's the detail that is tripping us up. Can't see the forest for the trees, and all that.)

My dad is 73, and lives on Social Security - about $1,400/mo.  He's long since moved from Seattle to Eastern Washington where living is more affordable, but the rising prices have crested the mountains and it's now just about impossible to find something nice-ish to rent within his budget.  For the last 3 years he's rented a condo from his good friend and has really gelled with the condo's community, but the friend now needs to cash out of the property, so we've made the decision to buy it and keep my dad in it.  The friend is giving us a really good deal, since we're all practically family: $165,000 purchase price for the condo (market rate is probably closer to $215,000).  We'd then cover the costs, with him chipping in what he can, for the foreseeable future.

The question is, do we buy the condo cash, or take out a mortgage? 

The cash would come from a savings account that we still have in Norway.  The reason it's still in Norway is that the exchange rate went from the best it had ever been (5.8 NOK to 1 USD) when we moved there, to the worst it had been in a long while (8 NOK to 1 USD) when we were due to move back, and we couldn't bear to convert it back with such a perceived loss.  We've been waiting ever since for it to return to previous levels, but it's still sitting at about 8.3 NOK to the dollar.  If (or when) it does improve, it'll increase the value of the money by about 30%.  In the meantime, it's sitting in a special Norwegian-sponsored type of savings account for young adults that can be used only for money that will be used to purchase property.  It can't be invested, but it is earning 3% interest.

The mortgage would come from a local bank. We thought we'd landed a 4.25% rate on a 5/1 ARM, but the rate turned out to be an error on the Rep's part, and it's actually 5.0%. Down payment is 25%, so the loan amount is $123,750. Closing costs of $4,618 are the following: Underwriting fee $495, Appraisal fee $700, Credit report $33, Tax service $109, Lender's title insurance $543, Title settlement fee $434, Recording fees and other taxes $300, Prepaid homeowner's insurance premium $780, Prepaid interest for 15 days $254, Escrow homeowner's insurance $130, Escrow property taxes $840 (we normally don't escrow anything, so that in itself is annoying).

We chose the 5/1 ARM because we figured we'd give the Norway exchange rate 5 more years to improve, and if it does, great, we'll move it and pay off the loan, and if it doesn't, well, we'll move it regardless and pay off the loan. But, it gives us a timeline to move that money, and hopefully gets us over the analysis paralysis.

SO!  Do we move the money now and buy the condo cash, or take out a mortgage for now and move the money later? 

My inclination is to take the mortgage and keep the remaining cash to use toward additional property investments - we've been talking about investing in real-estate for some time, and I'd like to try our hand at owning a rental (maybe small multi-family).  My husband is inclined to buy it cash (and hopefully not just because he's a bit peeved at the increased rate and increased fees associated with the bank's error, although I think that's part of it).

Who do you side with?? And why?