How to Structure Deal with Family Member

[Tim McGarvey]

I'm trying to put together a deal structure between myself and family members (grandparents). Obviously I want this to be a win-win situation for all parties. I wanted to get some input/feedback on my thinking and strategy here to make sure I'm covering all angles. 

The house is located in the south Bay Area (Milpitas) near San Jose and was purchased in about 1970. Because the housing market is so hot in the Bay Area, my grandparents stand to make a killing on their initial investment my selling their house now and downsizing to a smaller condo closer to the rest of our family about 25 minutes east.

The house is a 4 bedroom, 2 bathroom, decent sized backyard, above average neighborhood and near a elementary school. 95% of the finishes inside the house have not changed since 1970 but the entire house is in pristine condition. They take extremely good care of it and just replaced the roof last week. Comps I have looked at on Zillow in the neighborhood have modern finishes and are selling for around 750k. My grandparents home could easily exceed this if the kitchen and a few other areas are modeled and modernized. 

While I would love to purchase the home from them and use it as a income property and get some experience landloarding, the math does not add up from me given the out-of-whack housing prices. Back of napkin math: fair purchase price, 600k and would rent for around 3k. I don't see a way to make a fair deal with my grandparents without offering them an extremely low payment per month to help me finance it. A flip seems to make the most sense, as my grandparents can cash out on their investment and I could make the money created my improving the value of the property. It would be structured something like first appraising the house and agreeing on a fair market value, then I would keep the difference between that and what it sold for after renovation. I would of course give back a percentage of the profit, pay holding costs, etc.

Thoughts on this type of structure or are there any other ways I could look at this deal given my situation?