Feasibility of Refinance and Rental for Retirees

[Michael Montagna]

I'm asking about the feasibility of a rental scenario for a parent who is set to retire. A parent wants to sell their 450-500k home with about 150k in equity before they retire to a tax friendly state. They would use that money to finish constructing their retirement home.

I suggested, with my elementary investing knowledge, to consider the following. 

1. Pull equity out maybe through a cash out refi. 2. Set up an entity and run rentals like a legit business. 

3. Rent to me and my fiancé. 4. Draw up a contract with a lease option. 

If I'm not mistaken, this would allow my parent to obtain the equity, set up an run a legit rental business that provides a stream of income, gives me and my fiancé a place to stay and allows for us to recoup our rent money if its sold to someone else or sold to us. 

if anyone can think of the cons or hurdles to this scenario, I'd appreciate the chance to learn. Thank you BP.