Hiya Google Gurus,

    I'm contemplating taking over the financial responsibility of a
home that my parents live in and need some advice.

About the home:

3 bedroom/1bath
Located in Maui, HI 
Quarter acre.
Bought 8 years ago for $260, currently appraised @ 500k
House old and cheaply built
Agriculturally zoned
3 houses away from golf course
Garage converted into annex. (2 bedrooms, 1 bathroom, and kitchenette)

About the owners:
My mother and stepfather own the house; both are retired. I believe
they have around $230k left on their mortgage. They currently pay
around $1,700 monthly. They are planning to build a small cottage on
the property to live in, so they can rent out the main house. They get
$700/mo for the annex and expect to rent the main house out for
roughly $1,000. They will be borrowing $120k against the their equity
in the house to build the cottage.
They would like to sell because they want the profit they've made in cash.

About me:
26 years old
Live and rent in California ($700/mo)
Partial owner of a company. Employed there 3 years.
$48k annually
Have had 2 credit cards for 6 years. Never missed a payment. 
$6k of debt on 1 card/ $0 on the other.
Paying off $4k to IRS.
No savings.
No other financial responsibilities.

What I would like answered is this:

- Is this a wise investment?
- If so what should my game plan be?
- I'd like some links to more resources.

Thanks!

---

Clarification of Question by zumpoof-ga on 20 Jan 2005 14:09 PST

My apologies, I wasn't clear on what I meant by taking over "financial
responsibility". I'm considering taking out a loan to purchase the
property in full from my parents, this is the only way I know of that
will allow me to actually own the house and reap the benefits of
homeownership.

You're missing some important facts...

What would be the sale terms, if any?  If you just take over payments
and quit claim the home over to you, your parents are still liable for
the home.  Without applying for and receiving financing in your name,
you will receive no credit (forgive the pun) on your credit report.

www.creditinfocenter.com

Your New Objectives:
1. have the property divided into 2 or 3 lots.  ($200)
2. sell* the old house and it's lot for ~250-400k  
3. use profits to build cottage for parents.
4. parents live in a carefree retirement, and guaranteed to leave you
   a nice rental cottage.

If you can get 3 lots out of the land you have, rent the dirt out for
a few hundred dollars a month.  Make long-term leases, the tactic here
is that when the lease expires you get to keep whatever building has
been built there.

*sell-
partially owner finance the house, maybe like 30% owner finance, ask
for very little down.  This will help you get a buyer to pay the
premium asking price.
("terms / price" scale  - is much like the "supply / demand" scale)
Plus you get to make more money on interest, and your folks have a
residual income.  Worst case scenario, they buyer stops paying the
bank and you, and then you get to take your house back, and resell it
all over again. (keeping the down  payment and any payments made)

More reckless thoughts:
you should invest 34$ in purchasing your credit reports from experian,
transunion, etc.  If you have anything on there that shouldnt be you
can dispute it, I have info on that too. sean@kubin.net
and you pay way to much in taxes.  Fire your gumby tax person, and get
somebody that specializes in deductibles related to your line of
buisness.  They should tell you something like. "borrom ten thousand
dollars, dump it into an IRA, and save X dollars in taxes by writing
off ira investment, and write off interest payments"
In arkansas the thing seems to be raising cows.  buy the cow, tie it
up in the back yard, wish it luck.  file tax losses.
Go get a wife. If you dont have one in mind, write out some very nasty
prenuptial agreements (to make sure you dont get burned) and go marry
a hooker.
alternatively there are some foreigners that pay good money to get
into the states.  I dont have information on that, other than its
illegal to do for only that purpose.
Get out of that rent house.  buy some land outside the city and commute.
  There is no reason to pay top dollar with all the foreclosures in
california.  You dont need a down payment, if you can get the seller
to go along with a down payment assistance program.  Do be sure to get
a reputable one, because there is  a fine line between the perfectly
legal seller contributions and illegal sorts.
whew

seankubin-ga,

    Sounds like you've dealt w/ this alot. Thank you very much for
taking the time to help me out. I paid the $34 and got a great credit
report covering all 3 bureaus. I have a pristine list of payments made
ontime for 2 credit cards since I got them 3-5 years ago. My credit
score is 748, which I guess is good.
    The land is agriculturally zoned, and to the best of my knowledge
can't be split into parcels smaller than 2 acres. I will take your
advice in getting a decent tax guy instead of using H&R Block.

Thanks again!

748/800 = outstanding.  You are well above the national average.
The credit score is *part* of an equation that banks uses to determine
how they will handle your situation.
650+ is what everybody wants.
 Point blank, you qualify for every loan the bank offers, 5.25%
interest is about what you should expect on any loan you need (nothing
over 6%), and they can loan you up to 90% of the appraised value of
the property.
Your next immediate step should be able to walk into a bank and get
pre-approved for a loan.  This is a sheet of paper that will let
realitors, contractors, etc know that you are serious about doing
buisness with them.
  The other parts of the equation are income/debt ratio and of course
the value of the collateral being borrowed against. (Appraisal)

My reckless thoughts:
There is potential here to bambuzzle the mortgage company out of some
money, but I have no experience in this field. [Essentially your
parents stop paying on the property, the mortgage company threatens to
foreclose (which is usually a huge problem for them) that is when you
step in and offer to take over the property and mortgage for 80-90% of
the loan ammount.  the mortgage company agrees, your parents go into
foreclosure, and you gain control of the property at 80-90% of the
outstanding balance.]

seankubin-ga,

    Thanks again for all the help. It's nice to know that a loan isn't
completely out of my reach. I suppose at this point I should just walk
into a few banks and see if I can get approved for a loan.
    I am interested in realestate as a carreer and have alot of
studying to do. Perhaps when I'm a bit more comfortable w/ it I'll
look into the available loopholes. Are you in the realestate industry?

Thanks!

About me...
Real estate requires excellent credit, charisma, a sharp mind,
perisistence, and a goodly ammount of investment capital.  Thankfully,
I come from a rather long line of "Legally rich real estate tycoons". 
So many of these traits are instilled in me from childhood. 
Unfortunatly my parents divorced, and our generation's progress has
been financially stunted thus I lack credit and capital.
    However, I am closing on a property that will make me $10,000
profit.  And my credit 'problems' will go away 3-8-05, (credit repair
tricks)  So my next volley of properties should yield significantly
greater results.  (my first was uber risky combination of short term
loans and credit cards)  But once the property was mine, there is
nothing the credit cards can do to get at it.  (I will of course pay
them back after I close, and will end up paying 7,000 for a 5,000
dollar loan.  But the net result is still $10,000 profit.
     
About learning realestate.
  If it is your intention to sell property that you never own, by all
means, goto real estate school, and get your license.
  If it is your intention to purchase property, rent it out, and sell
it for 3 times what you paid for it, goto the book store (library) and
read up.
there are lots and lots of B.S. books on the shelves.
read this first:
http://www.johntreed.com/BSchecklist.htmlhttp://www.johntreed.com/BSchecklist.html
it will give you some eyes to judge real estate scams, and such.
good luck,
-Seankubin