Taking on Mom's house

[Adriel Irons]

Hi BP Folks,

I've been a podcast listener for some time, and have been working up the nerve to jump into investing. I live in NYC, which means that local deals (or even a primary residence) are difficult to come by.  I grew up watching my Dad rehab, flip and rent homes, so I've seen (and done) some of the grunt work, but I have yet to get my own skin in the game.

On the flip side, my Mom has had a house that I've worked with a property manager to keep rented for the last 10 years or so.  It's in central Florida and started as our primary residence, before she moved and I convinced her to rent it out rather than letting it sit vacant. She held it through the downturn, when it was severely underwater due to refinancing at the height of the market to do renovations.  Last year, I helped her refinance it under Harp 2.0, and it's right at break even.

So now, my situation.  My Mom has never looked at the house as an investment, and doesn't like having an investment property at all.  She wants to get rid of the house more than anything. She's been anxious to sell the house, but with less than 4% equity in it, I'm pretty sure that even if she got market price for it, she would walk away from the closing table owing transaction costs.  The other issue is capital gains.  the house is worth close to double what it was at purchase, and even with renovation costs built in, I'm thinking the depreciation she's been taking will mean that she winds up owing something the next time 4/15 rolls around.  All of that led me to think that maybe me taking over the house is the best option for us both.

I'm not thinking of it as a good investment.  Though I don't think I would have a downpayment, I'm anticipating transfer costs.  The house currently rents for 1200, though market rate is about 1400.  Mortgage, taxes and insurance came out to 1230 after the refinance. The property manager takes 10%, as well as an annual releasing fee and property inspection fee, plus maintenance.  With the current mortgage, there is negative cashflow, and because of the low equity, I don't think I woul be able to refinance without putting in a considerable down payment. 

With that said, my Mom isn't getting younger, and has had financial trouble in the past.  She's not completely out of the woods either.  While I hope she remains healthy and independent for a long time, life doesn't always work out the way you want it to.  I would rather make arrangements now while there is time to do things properly.  The house is appreciating pretty well and is in a desirable neighborhood.

If you've made it this far, thanks for reading! My question is, am I missing something?  Right now, I'm going to try having her mortgage company transfer the mortgage into my name, while having her do a quit claim deed to put the property in my name as well.  With the property under my control, I would look for ways of improving the cash flow (renegotiated terms with the property manager, or new property manager, increased rents, etc.) but I don't anticipate being able to do better than break even in the short to mid term.  Are there better approaches that I haven't thought of, and has anyone out there done something like this successfully?  Thanks for your advice!