Buying Investment House from Parent & Need Help Structuring Deal

[Timmy Fritz]

Situation: Looking for the best way to buy an investment property from a parent who has already paid off the mortgage.

Hi, I’m new to BP and I was hoping to get some feedback from you all! I am in the process of talking to my mother about purchasing a property she bought when I started renting throughout college in Louisville, Kentucky. She wants to get rid of it, and I’m interested in getting into real estate. The home is located in the 40215 area of Louisville, and is zoned for multi-family as the upstairs is an apartment with its own entrance. It’s on S 5th St, and a lot of the homes immediately around it have or are undergoing rehabs. My mother purchased it in 2015 and we have been renting it out to my friends over the years while I live there for free during college. I would like to continue renting to college kids, as I have friends lined up for the next few years. There are 4 bedrooms(including the 1bed apartment upstairs) with each renting for $375-400/mo She owns the house free and clear, and I'm trying to figure out the best way to go about giving her a fair deal that gives both of us the best outcome. In trying to figure out the best way to structure a deal for the property, I’ve looked into the idea of her gifting equity and owner financing.

I've partnered up with two other guys who have raised money from investors and we are looking at other investment properties to continue in real estate. The goal of this house would be for me to continue house hacking it and use this house as leverage to purchase other properties. Is there a way that'd allow me to have her owner finance this and pull out equity in a HELOC or cash-out refinance in 6 months after seasoning while continuing to make payments to my mother going forward? Or is there a better way to do this? Also, can I do this through an LLC or would that hinder my ability to get the best outcome since I would only be a one third partner in the LLC. Thanks in advance for any feedback!

Purchase Price - $70k-85k

Cash Flow Per Room - $375

Property Tax - ~$700 & Insurance ~$500

NOI (50% rule) - $750

OR

NOI: $1500- $105(7%vacancy) - $120(8% PM) - $150(10% repairs) - $58(Taxes) - $42(Insurance) - $250(utilities) = $775

Estimated ARV(current w/ ~$4k of work) - $85k

Estimated ARV(w/ ~20k of work) - $115k

--Will most likely wait to do this until later on since it will only be college students renting

Mortgage 30yr & 5% rate(5% Down) - $485/mo(includes PMI)

@Andrew Whitacre @Salvator Migliore