Heloc / Relative Seller Financing

[Jessica Costa]

My husband's uncle is looking to sell his two family property and we are interested in buying it. There is no mortgage on the property and we are hoping he will consider seller financing. We have a few questions:

• 1. Can he simply transfer the title/deed in our name if we were to do seller financing and pay him amortized over 15 years?
• 2. Can we take out a HELOC on the property if the deed/ title is in our name? Is there any ‘seasoning period'? Any other hiccups we could run into along the way?
• 3. The house is in immaculate shape but a relative is living in the first-floor apartment way under market value – he pays $730/ month including utilities for a 3 bedroom that has been entirely re-done and could easily command $1200-$1400/month. We are proposing to keep the relative in the first apartment and just raise the rent slightly (still under market value) so the property will cash flow only a few hundred dollars/ month to cover the "mortgage" payment and the rest will be saved for other expenses. Our primary goal is to obtain the property based on seller financing and then use a HELOC on the property to invest in other properties and eventually when the relative tenant moves out the property will cash flow 2x the current rate.

How will this affect his uncle? Will he have to pay capital gains? How will he be taxed on the income he earns as a result of the seller financing? What tax implications should we be aware of?

I look forward to an advice and insights, thank you!

[Doug Pretorius]

@Jessica Costa

1. Yes.
2. No. The property will already have a loan on it (the one you owe to your husband's uncle) so there won't be room for a HELOC until you pay that down.
3. Just make sure you know your landlord tenant laws regarding rent increases.

Regarding taxes, your husband's uncle needs to have a chat with an accountant. Chances are good that financing it to you will be better for him tax-wise than selling it outright.