Buying parents home - owner financing?

[Daniel L.]

Hi all —

I have seen numerous posts on this topic, but none seem too similar and am looking for creative (if any) ideas to transact. 

My folks (retired, not working) are relocating south (future primary residence) and I am going to buy their home from them in NJ. Estimated $1.2-1.3m. Initially I plan on giving them $1m so they could use this money to purchase their new home (which they lived in for 15+ years). In return, they are going to rent the house back from me as they will then use this as their ‘second home’ for 5-6 months per year. This home will be an investment for me and could become a residence at some point. I own no other property. 

Question is from a tax perspective for both sides to be fair, is this best structured as  

1) ‘loan’ them the money, put a lien on the house for that amount, keep it in their name and collect interest/‘rent’? (Somewhat like a reverse mortgage?) 

2) buy the home at MV and assume title in my name and just treat them as tenants? 

3) any other suggestions? 

As an aside.. I have siblings; there is probably cap gains over the ~$250k mark that I have seen mentioned (for them) 

I will end this message by stating I will seek CPA/estate planning services to help assist with overall strategy but looking for something I could be missing in the interim