Taking over home mortgage from family member pros and cons.

[Allen Ramirez]

Hi All!

I am looking for some advice from all the smart people on this website :)

I have a family member that is offering to transfer over their home title to my wife and I. Giving some rough numbers, let's say the interest rate when they purchased was around 3% and they offer to sell to us for $100,000 cash. 

Original price was around $270,000 but right now I would say it's worth around $390,000 for some rough numbers.  

The other route I was thinking is to buy straight out using a FHA loan since this would be our first home. The goal is to use this property as a rental property though. And I know you can't use FHA loan on rental property, but let's just say it's possible for the sake of argument. (I already discussed this with a loan consultant)

Going with scenario one, the pro is that I can charge a renter a reasonable amount seeing as the monthly is fixed at the lower interest rate. Therefore, the cash flow each month will be much higher than the second scenario.

However, the second scenario is MUCH LESS out of pocket. Where technically I am not making payment to my mortgage, renters are. The con of this though is that the monthly payment is much higher, thus reducing my cash flow significantly (if anything).

Since I am somewhat new to real estate, I know there are more variables to consider like appreciation, or refinancing or HELOC down the road. But I just wanted to see if there was some advice like one way is DRAMATICALLY better than the other? OR if it just comes down to specific numbers that I may not be including here. :)

Thanks for you advice in advance!

Allen