Private Money and Delayed Financing

[Kirby Nichols]

I have a question about the rules for delayed financing, although I'm sure this question applies to multiple refi scenarios....

We are under contract on a FSBO for cash. It's in great shape and only needs minor updates and repairs (under $10k). We could easily rent it as-is without even picking up a paint brush, but we specialize in higher end rentals.

My parents will be lending us about 30% of the total purchase price, as we didn't quite have the cash we needed to get into the best school districts. The other 70% will come from a HELOC on another rental. Once we've fluffed the house a bit, we will refi, pay off the HELOC, and go around again.

All of the delayed financing options I've found specifically state that any cash from a third-party must be a gift, and you absolutely cannot use the proceeds to pay off a private loan for the original purchase. I'm trying to understand the spirit of the rule. Is this to prevent folks like me from getting in over our heads? 

My parents are willing to sign off on it as a "gift", which is true in spirit. If we are unable to pay them back immediately, they certainly wouldn't put a lien on the property. Technically, we could shift money around and pay them back from other funds by the time we're ready to refi in 3 months. On the other hand, we could easily eat the interest fees and refinance at 6 months. That just means we're throwing away ~$2,000.

How is this rule enforced? What are the ramifications if we do turn around and repay my parents with the funds? Appreciate any insight!