Board Topic: Turning Dad's house into Rental Property
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Turning Dad's house into Rental Property

Posted by: Art Thompson Aug 27 2003, 11:32 AM
My dad has left his house to me in his will (Mom is deceased). Now he has decided to move and wants $100K out of the house in order to "have what he needs". I don't want to lose the house, but I'm not sure how to swing it.
The house is worth about 150K and sits on 5 acres. He owns it outright. t could rent for $800 a month or so.
My house is worth about 185K on 15 adjacent acres. We have about 40K in equity.
He's open to suggestions, but doesn't want to hold the mortage.
Any expert opinions on this situation? Thanks!

Posted by: loanuniverse Aug 27 2003, 12:20 PM
First, let me make sure that you are aware that I am not an expert when it comes to residential real estate that is transformed into income producing property. I am fairly knowledgeable when it comes to loans for income producing property, but the deals are usually much larger and do not include certain important factors that affect transactions such as the one you describe where there could be tax considerations on the consumer level and possible access to traditional residential real estate financing.

Having said that, while the house has been left to you in your dadís will, the house is still his. Therefore, I see a bit of a problem in getting financing without his involvement. Is it possible to get a loan structured so that you are the one owing the money, but the house can be used to secure the loan? Well, yes it is possible. Actually loans are structured with third party asset assignment all the time. Nevertheless, I am going to be honest and say that I have never come across a transaction similar to the one you describe. Granted this could be because of my limited experience with consumer credit.

On the other hand, it occurred to me that since your dad is only looking to get $100,000 from the property, have you considering buying the house from him so title would pass to your name and he would not be obligated or involved with it in any way. The purchase contract could be setup in a way that it reflects the market value of the property, this way you would not have to put any money out of pocket, and have the closing costs associated with the transaction rolled into the mortgage.

You need to talk to a local residential lender about this matter. Either arrange a loan secured by the house and your dad being the third party {a very convoluted way to do it, which might confuse your average lender in my opinion} or just purchase the house and finance the $100,000 that your dad wants.

Hope this has been of some help.

Posted by: Aart Aug 27 2003, 01:05 PM
Thanks for your quick reply! Buying the property from him for say 125 and financing 100k has occurred to me. I was just wondering if you had any other ideas.
I don't understand what you mean by the third party asset assignment.

Posted by: loanuniverse Aug 27 2003, 01:09 PM
QUOTE (Aart @ Aug 27 2003, 01:05 PM)
I don't understand what you mean by the third party asset assignment.

I mean the following:

You = the borrower or 1st party
Bank = the lender or 2nd party
Dad = Owner of the collateral or third party

Usually, loans involve only two parties a borrower and a lender. However, there are cases where the assignment of collateral owned by a third pary in this case the house still owned by dad is needed. That would be a third party assignment.

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