Home with 3.625%, trying to takeover mortgage, renovate/rent home and buy TX home

[Nick Victorio]

My parents are moving out of state and want to sell their home, but are willing to put title over to me if i can figure out some creative financing(Prop 13 advantage).  Which includes buying them a home in texas and paying it off so they have deed. ($250-$300k within 1 hour from temple,tx).   

The current home in San Diego County has a low 3.625% interest rate and low remaining principal of $89k , i would not want to refinance due to this great rate and proximity to my current home. Unfortunately, the house needs significant work done to allow it to be rented out, this has the potential of bringing in rental income of $3-5K a month.

After renovations, the home will have alot of equity based on the guestimated $100k-$150k renovation scope, (estimated ARV 800k). Based on capital and E1 zoning, I could add a guest house and more bed/baths to match the comps 1 block away: (5 bed 5 bath that are valued at $1.3-1.5 mil).

I have a primary residency and heloc on it, with $100k available.  So this limits my approval with additional loans i would assume.  Would anyone know what would be the best way to go about this? Or referrals for lenders, contractors that have dealt with this type of scenario.

[Bill B.]

What do you care about the interest rate on an $89k loan?  If you get HOSED and get and pay an extra 2-3% you’re talking about $200/mo at the worst. Get a 15 year mortgage and you probably cut your payments in half even at the higher interest rate as I assume there are less than 15 years left on the current mortgage. 

Ps. Your parents should definitely sell and take the tax free gain, especially out of California, this could save them 30% or more. As soon as they out you on title or gift it to you or whatever other 6 figure mistake they should talk to an expert if they’re planning on anything other than a straight sale. Remember, you would inherit their low basis/high taxes if you’re on title before their deaths. Only you couldn’t avoid them. 

If you wouldn’t buy the property from a stranger as a rental, it’s a bad rental. The fact you already own it doesn’t make it a good one. Why not sell it and buy 2 free and clear in their new low tax, landlord friendly state?

It might take a decade just to “earn” the taxable profit that could be theirs today tax free with a sale. IF everything goes perfectly.