Build home for Parent?

[Joseph B Lively]

Hi there.  I have a scenario I'd like to run by you all.  I'm worried that I might be making a mistake on several fronts, but I don't know who to ask.  My realtor didn't fill me with confidence.

My mom and my grandmother live in 3 story condo on the Oregon coast, owned free and clear by my mom. I'm her only child.   My grandmother (86) is getting too frail to go up and down the stairs on a daily basis, so she just stays on the top floor and makes my mom weight on her up and down the stairs.  My mom doesn't want to sell her condo as it's her dream location, but she can't keep care taking for her mom there.  My mothers credit is still in the tank at around 580 and her only income is 900/month in social security.  She would not qualify for a loan.  She would like to come up with a solution before the end of summer.

This is what we are looking at:

Her house has 265k in equity. We were thinking of adding me to the title of the house and doing a HELOC on it for 180k (< 70%). I would then use that 180K as a down payment on a conventional loan for new construction on a single story house that is being built in a new development near my wife and I (Est completion date is July with a price of about 280K). We would rent her condo out (1900/month for rent) and use that money to pay down the Heloc and the new home loan. The amount of rent would cover the Heloc payments and the new loan for the single story house (plus taxes/ins). When my grandmother is no longer with us, mom would move back into her dream condo, and we'd put a renter in the single story house we had bought. Rents will be about the same and still able to cover both loans and T+I.

When my mom passes, as the sole child, I'd be left her condo.

Here are my questions:

1) Adding myself to her condo now, in order to use my income (she has none, but social security) and my 800 credit score, does that prove to be an issue.  Is there any seasoning that needs to happen for banks..or do they just pull the title and see I'm on it for the Heloc?

2) The other reason for doing it this way, is using the 180K Heloc funds for a down payment on a loan that would be solely in my name, I'd need to show those funds are 'mine.'  If the Heloc off the condo is in my name, there is no question there.  Do you think I'm missing something here?

3) The new house and loan that secured it would be 100% in my name.  Even though it's family, we'd have an agreement written up showing that all rental income from there goes to pay the mortgage first, then the line of credit with what remains.  

4) Since it's a Heloc, if we have vacancy or maintenance issues, we could also pull additional funds from it, as we plan on getting a 200K line but only accessing 180k of it for this plan. A built in buffer just in case. Plus since it's a LOC on the condo, the 'minimum' required to pay goes down over time, so if rents decrease over time for a recession, we should be ok.

They way our family sees it, is that it solve the immediate need of Mom and Grandma to get into a single story home, closer to us.  She is adamant about not wanting to sell.  If she took the max of 200K out and tried to buy used, the quality of the home would be sub par. (We've looked!)  She doesn't want a new mortgage payment at all, as she's budgeted with her social security now.  

On my side, I get to have my mother and grandmother closer.  I would use my excellent credit and income to allow a purchase of a new home  build in a sub division.  Down the road, I will have have both the condo and the new build as rentals to help start my real estate goals.

Ok, where are the holes and problems?  This seems pretty straight forward to me, but outside of having my wife's fathers house as a rental in California, I've only bought and sold primary residences.

I really appreciate the insight.  My RE agent didn't seem to have an issue with that plan as long as everything was documented and agreed upon by all parties.  BUT, he also said he had never heard of this scenario before.  So, I'd like to turn to the experts here!.

Thanks,

Joe

[Joseph B Lively]

Scott,

Thanks for the reply.  That's essentially how is it now.  The first story is really just a garage and stilts, second story is all rooms but bedrooms, top floor is the bedrooms.  We tried to make a den the bed area, but it's impossible for my mom to have any social life with friends coming over.  So, we move gma up, and she loves it there (yes, ocean view) but she just won't leave it once up there.  I installed standing chair lift on the 2nd to 3rd floor, but  she's only used it once.  Heck, my mom uses it now for the 15 or so trips up and down..and she's no spring chicken at 70 years old.  Also, gma has an irrational fear of tsunamis. Don't laugh!

Getting real here, it's possible that by the time my gma passes the 3 stories might be too much for my mom as well.  So, by me locating them closer under the guise of helping grandma, in 3-5 more years....mom might need us closer to care as well.

Families....the things we do.

Originally posted by @Scott Mac:

Hi Joseph,

Why not make story 1 Grandmas house (with everything she needs (quick temporary type remodel--walk in/roll in shower, handicapped water closet, one of those beds that auto tilts up at the head, and a new big screen TV. Put in a couple of comfy chairs for visitors too.

Then Mom gets the next two levels to make a living room and bedroom and bath out of.

Just do temporary modifications to floor one.

And if you can see the ocean from it, maybe enlarge all of the ocean side windows and add large walkout balconies on floors two and three.

Good Luck!

Good Luck!