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Cash our refinance or TIC loan?

Three of my mom's friend have agreed to sell their share of a 4 unit property to me.  Thus, I will be a 75% share holder, while my mom will retain her share and be a 25% share holder of the apartment building.

My question is, what kind of loan should I obtain? TIC loan or cash out refinance?

My mom can refinance the property and cash out money to pay her 3 friends.  In the refinance, she would add my name to the new loan, and I would be responsible for the loan.  Also, I would be added to the deed, while her three friends would be taken off the deed.  Or, I can apply for a new TIC loan on my own to buy out the three friends?

Which would be the better loan to take?  The property is already paid off.  I am told a cash out refinance keeps the same property tax, while with a new TIC loan, the property tax will base off the new purchase price?  If this is true, I am leaning toward the cash out refinance option.  Are there any cons to this option?  Closing cost and other fee differences?

Typically, which of these loans will give me a better rate? 
  • December 14 2013 - San Francisco
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Answers (2)

Couple issues  with your plan
If you  take off title three people who are not husband or other children of your mother's - this not a family transfer deed. Property tax will be re-assessed, excepting her 25%.
Both plans involve some property tax change.
Difficult get a mortgage with 75% 25% tenants in common. Most lenders can't sell that to
Fannie or Freddie. She either takes the loan in her name alone or as joint tenancy with you. Who qualifies for the loan? Mom claimed 4 plex on her Federal taxes with 1/4 of the income? - You will need to clearly demonstrate the income to use to qualify.

If Mom "adds your name to the loan" you both are responsible for the loan.

An owner occupied purchase is going to be cheaper in rate than a non owner cash out.
Are you going to live in it?
Lenders will see this as a "non arms lenght transaction" you will need to supply exact and careful documentation.  
  • December 30 2013
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Profile picture for Brian GFL Capital
cash out refi will be cheaper in fees and future property taxes. the property taxes will be based on the new purchase price if you went that route. also, with the TIC purchase you will need a purchase agreement and will be subject to transfer taxes like any standard purchase loan.

the purchase will have a better interest rate than the cash out refi

if you plan to occupy one of the four units then you can claim the property as a owner occupied property which will give you the best rate.
  • December 16 2013
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