All Forum Posts by: William Richard Arens

Hi all,

I am a 26 yr old prospective real estate investor. I currently make about 65k-70k/yr at my W2 and have run a small mowing company for the last 7 years which makes me another 12k/yr. 2 years ago I discovered bigger pockets and have been absorbing as much information as possible since then, reading every book they have published and listening to nearly 300 episodes of the real estate podcast and every episode of the money podcast. I have been implementing the ideas and currently hack my housing in an unconventional way (my girlfriend and I trade work at a farm in Northern Virginia in exchange for rent and board for her horse). 

I have been planning to buy my first house hack this year and have accrued about $20k to put towards this first investment. However, about 3 months ago, my parents dropped the ball on us that my father (previously having about $3million in savings) has only $10k left in savings after the business he has been investing in over the last 6 years has almost lost him everything. My father's company has been appraised at $70mil but it has obviously not worked out yet and I digress. My father doesn't make money outside of mowing for my mowing business and my mother only makes about $45k so they are unable to afford their nearly $4k/mo mortgage and are very close to short-selling their proper since my mother was just denied for a refinance.

My question and topic for discussion is as follows: My parent's 14 acre farm in Northern Virginia (Loudoun County) has a tax appraisal of about $700k. They currently owe about $325k on their first trust and another $50k on their HELOC for a total of about $375k. additionally, they have a 10 stall barn on the property and the entire family pays board to keep horses there (9 horses, 3 dogs and 2 cats on the property). I currently have a 760 Credit Score and $20k in savings. I have spoken to them about the idea of me purchasing the house and they have agreed to allow me to purchase the home for $450k and then sign a lease for $2000/mo for 2 years. If I were able to buy the house, I have told them and they have agreed that I will treat it like any other house hack. I will rent them the top of the house and I will live in the basement while renovating it. Then, after my 1 year requirement is finished, I will move out and rent out the basement to make the property cashflow even more.

Numbers:

Appraisal: +$700k

Purchase Price: $450k

Total Expenses: -$3425/mo

Estimated Principle & Interest: -$2000-$2200/mo

Insurance: $350/mo

Taxes: $500/mo

Utilities: $375/mo

-----------------------

Total Income (During Hack): $3000-3400

Total Income (After Hack): $4000-4400

Rent Income: $2000 for top & $1000 for basement after moveout

Horse Board income: $200/horse *5-7 horses = $1000-1400

So, by my math, I will be out of pocket about $400/mo to cover all expenses of the property. To me, this is very affordable and when you consider that it will cash flow between $600-$1000 after I move out, it becomes a self sufficient investment with a lot of equity. my plan would be the hold the property indefinitely and cash-out refinance it every 10-15 years (maybe even sooner for the first one since I am buying it for such a discount). 

My Questions:

(1) is this a good deal?

(2) should I be able to use the lease agreement with my parents for $2k/mo to count towards my debt to income ratio when qualifying for a mortgage?

(3) is there anything that will prevent me from buying a family member's house for a discounted price? (some law that prevents property from being conveyed between family members for below market value *even though they are about to short sell it anyway and they are dealing with debt issues and will likely sell it for cheap regardless*)

I apologize for the lengthy post and I appreciate anyone and everyone's input. 

Thanks,

Billy Arens

Thank you for the input everyone, it is interesting to know that you are free to sell for whatever price. @Eamonn McElroy I suppose gift tax implications is part of my question here. Would the IRS (or lenders for that matter) view a transaction between family members for less than appraised value be viewed differently than if i found the deal on the open market?

My Father started a company a few years ago and is currently at risk of losing his 2 million dollar lifesavings if he cannot sell the company (intellectual property holding company). Instead of losing his home, he would rather sell his home to me and then I would rent it back to him. Is it allowable for me to buy his home for what he owes? The home is worth between 600-700k but needs work. He still owes about 350k and wants to sell it to me for that price. They currently pay 4k per month on their mortgage. I want to buy so i can take out a HELOC and finance other investments. They want to sell and rent from me to lower their payment and offload the asset in case of future bankruptcy. Is this legal? Would I be able to get a mortgage on this type of deal? Thank you all!

@Joe Splitrock thank you for this explanation. I have been looking for a house hack of my own and was wondering how cautious I need to be relating to the "occupancy" requirement of these loans. I have been wondering how much time per week constitutes "occupancy" because legally it seems that you just need it listed as (1) your mailing address (billing address, not sure which takes precedence); (2) listed as your dwelling for tax purposes and (3) have the intent to reside there. Outside of this, If you want to spend 3 nights per week on average sleeping over at your parents/friends/significant other's house then it seems perfectly acceptable. So long as you do so for 12 consecutive months after first occupancy. 

Does this seem correct? Also, what if I do have a work assignment that takes me to another country for a month or two? is that okay so long as my FHA occupied house is still listed as my residence (and all of my belongings are still in my portion of the home) while i'm away and then I return to it when I get back?

I am sad that I missed this event! I am new to Bigger Pockets but look forward to attending future events.