Need advice on Pursuing Seller Finance on this deal

[Macie Moore]

Hi BP Community,

My husband and I are ready to make an offer on (3) single family homes, one of which we are currently renting. The three properties are owned by the same person, which luckily happens to be my husband's grandpa. He acquired the properties from his mother's trust after her passing and got them for a great deal. So, they come ready with equity and they all have long-term renters in them currently and have been in my husband's family for years. So, clearly this deal is very attractive to us as new investors who have no experience in land-lording. 

We've spoken to his grandpa about purchasing the properties and we asked him if he was familiar with the concept of seller financing to which he replied that he was. We have not explicitly made him an offer yet, but that is mainly because we don't understand how we are to structure this, the main reason being these properties are currently mortgaged. 

If these homes were free and clear then yeah easy peesy, we get it, but throwing this mortgage wrench into the equation really has us fumbling over our next steps. Where does the original lender come into play here? I am aware of the "Due on sale" clause that could potentially blow up in our face, and we don't have any safety net should the lender decide to call the loan, but I've also heard of that being a very rare occurrence as long as the loan is performing, so I'd hate for that to stop us from moving forward with this. What's the cleanest way to finance a property using seller financing that is currently mortgaged? Any tips or tricks for navigating this deal would be so incredibly appreciated! We are desperate to get moving and get some properties into our portfolio!! 

[Account Closed]

@Macie Moore @Daniel Dietz  You are very fortunate to have a grandpa like that. One word of wisdom though (okay, maybe two words) 

1) If your grandpa **sells** the properties, he will have capital gains based on his purchase price and date of each property. That can be a pretty penny he has to pay in the tax year of sale if he isn't careful. However, if your husband, **inherits** the properties, the "cost basis" is adjusted to the value at time of passing. Potentially Huuugge tax differences. I would **strongly** suggest you talk to a CPA or lawyer who does inheritance.

2) I suspect you could do a 30 year Lease Option or something like that whereupon you do sandwich leases to the tenants, collect the rent and pay him the mortgage amounts. At the time of grandpa's passing, you write up a release from the Lease Option and simply inherit the property. You might achieve the same goal and keep grandpa happy that he doesn't have a surprising multi tens of thousands of dollar tax issue.

Speak to a CPA that does inheritance planning or a lawyer that does tax planning or both. It will be worth it.