What's the process to buy an old house to tear it down and create a new one?
By process, I assume you mean the financial process. Financially, this doesn't look any different to me than buying an empty lot to build a rental unit, with the added expense (potentially significant) of doing the tear-down. Given your lack of experience and capital, I would be very hesitant to jump in like this. You are going to have to spend a lot of time managing the build process, or pay someone else to do it for you. And expect everything to take twice as long and cost twice as much as you expect. If you really want to get into the landlord business, I would suggest starting with a structurally sound building that needs some renovation work and start there. One you have that up and running, you can use the cash flow and equity to finance something more aggressive. If you still think you want to do this, the first thing to do is figure out if the financials make sense. How much will it cost to do the tear-down and rebuild, plus the typical rental expenses:ongoing maintenance, taxes, insurance, vacancy rates and compare that to the expected rental rates in the area to see how long it will take to 1) achieve a positive cash flow, and 2) break even. There are a lot of good questions on this site related to rentals that go into much more detail about how to approach this. Thank you for your response KeithB and Ross. I was researching more about this and looks like I have to follow all these steps (please, correct me if I'm wrong):
I'll compare it to a situation that is different, but will involve the same cash flow.  Imagine the buyer agrees that you buy only 70% of the house right now, and the remaining 30% in 7 years time.  It would be obviously fair to pay 70% of today's value today, pay 30% of a reasonable rent for 7 years (because 30% of the house isn't owned by you), then pay 30% of the value that the house has in 7 years time. 30% of the value in 7 years is the same as 30% of the value today, plus 30% of whatever the house gained in value.  Instead you pay 70% of today's value, you pay no rent for the 30% that you don't own, then in 7 years time you pay 30% of today's value, plus 50% of whatever the house gained in value. So you are basically exchanging 30% of seven years rent, plus interest, for 20% of the gain in value over 7 years. Which might be zero. Or might be very little. Or a lot, in which case you are still better off.   Obviously you need to set up a bullet proof contract. A lawyer will also tell you what to put into the contract in case the house burns down and can't be rebuilt, or you add an extension to the home which increases the value.  And keep in mind that this is a good deal if the house doesn't increase in value, but if the house increases in value a lot, you benefit anyway. A paradoxical situation, where the worse the deal turns out to be after 7 years, the better the result for you. In addition, the relative carries the risk of non-payment, which the bank obviously is not willing to do. I'm not sure about your first two options.  But given your situation, a variant of option three seems possible.   That way you don't have to throw away your appraisal, although it's possible that you'll need to get some kind of addendum related to the repairs.   You also don't have your liquid money tied up long term.  You just need to float it for a month or two while the repairs are being done.  The bank should be able to preapprove you for the loan.   Note that you might be better off without the loan.  You'll have to pay interest on the loan and there's extra red tape.   I'd just prefer not to tie up so much money in this property.   I don't understand this.  With a loan, you are even more tied up.  Anything you do, you have to work with the bank.  Sure, you have $80k more cash available with the loan, but it doesn't sound like you need it.  With the loan, the bank makes the profit.  If you buy in cash, you lose your interest from the cash, but you save paying the interest on the loan.  In general, the interest rate on the loan will be higher than the return on the cash equivalent.   A fourth option would be to pay the $15k up front as earnest money.  The seller does the repairs through your chosen contractor.  You pay the remaining $12.5k for the downpayment and buy the house with the loan.  This is a more complicated purchase contract though, so cash might be a better option.   You can easily evaluate the difficulty of the second option.  Call a different bank and ask.  If you explain the situation, they'll let you know if they can use the existing appraisal or not.  Also consider asking the appraiser if there are specific banks that will accept the appraisal.  That might be quicker than randomly choosing banks.   It may be that your current bank just isn't used to investment properties.  Requiring the previous owner to do repairs prior to sale is very common in residential properties.  It sounds like the loan officer is trying to use the rules for residential for your investment purchase.  A different bank may be more inclined to work with you for your actual purchase. "Both names are on the deed, so the property is jointly owned. You're going to need the second person's signature to be able to sell the property. Ideally the way to know ""what happens now"" is to consult the written agreement you made before you purchased the house together. The formula for dividing up assets when dissolving your partnership is whatever you agreed to up front. (Your up-front agreement could have said ""if you move out, you forfeit any claim to the property"".) It sounds like you don't have that, so you'll have to come to some (written) agreement with your partner before you proceed. If you can't come to an agreement, then you'll end up in court, a judge will split up the assets, and the only winners there are the lawyers..." For a real estate transaction there are multiple stages: From the sellers viewpoint: From the buyers viewpoint: If both parties are comfortable skipping some of the steps the role of the agent can be minimized. How will a fair price be determined? Some realism might be needed, to make sure that the loan appraisal will not be a problem. Will an inspection still be needed? What warranty will exist if the A/C dies this summer?  If you still want help from an agent one should be able to help for far less than the normal commission. The seller normally interviews three agents before selecting one, do the same in this situation. Ask how much they would charge for a sale between friends. They can complete their task in just a couple of hours. If the home inspection comes back relatively clean, the transaction should be very easy. The paperwork is the biggest hurdle. You should jointly identify a local settlement company. They will be the ones actually filing the paperwork. They have lawyers. They will check the county records office for existing liens, plats, mortgages and address all the issues. They can send the proper paperwork to the existing mortgage companies and arrange for mortgage insurance. The cost will be the same regardless of the presence of real estate agents and other lawyers.  When they say a lawyer is required, it is only because of the paperwork. and I need to upgrade my current home to a larger, longer-term property Would selling your current home give you (at least) a 20% DP on the new home? Take additional cash out of the refinance of the first home to accelerate saving Dittoing D Stanley, that makes no sense. Purchase and move to a second property of greater cost and value to first You'll need to find the new house at the same time you're selling the existing home, and write the new-home purchase contract in such a way that you can back out in case the purchaser of your home backs out. I don't know any clever way to do what you're describing.  And, in a sense, you can see why there might not be one.  A mortgage isn't just a magical way to reduce your housing expenses; it's a tradeoff in which you agree to a long-term commitment in exchange for fixed costs (or at least costs with a prearranged structure) over that long term.  If you're unwilling to accept the obligation of paying for and maintaining the property over a long period, you can't really expect to reap the benefits of lowered costs.  Part of the reason people say buying is better is because people often do live in the same place for a long time, in which case, if they rent, they might miss out on savings they could have had if they bought instead.  If you're not going to live in the same place for a long time, buying may not actually be better for you. Presumably this house is a great deal for you for some reason if you are willing to go to great lengths such as these to acquire it. I suggest you have your father purchase the house with cash, then you purchase the house from him. You might want to discuss this with the title company, it's possible that there are some fees that they will waive if you close both sales through them in a short period of time. If the home will appraise for a higher amount than purchase, then you may be able to get a mortgage without a significant down-payment. If not, then you will need to owe your father at least the amount of the down-payment at closing time. I think you're missing a couple of things. First - why do you think its a reverse mortgage? More likely than not its a regular mortgage - home equity loan. If so, if they expect the stock market to rise significantly more than the amount of interest they pay on the loan - then its a totally sensible course of action. Second - the purchase in cash only to take out a loan later can definitely be a sensible way to do things. For example, if the seller wants to close fast, or if there are competing offers where not having a contingency is the tipping point. Another reason might be purchasing in an entity name (for example holding the title as an LLC), and in this case it is easier to get a loan if you already have the house, since the banks see the owner's actual commitment and not just promises. The first and most important thing to consider is that this is a BUSINESS TRANSACTION, and needs to be treated as such. Nail down Absolutely All The Details, specifically including what happens if either of you decides it's time to move and wants to sell off your share of the property. Get at least one lawyer involved in drawing up that contract, perhaps two so there's no risk of conflict of interest. What's your recourse, or his, if the other stops making their share of the payments? Who's responsible for repairs and upkeep? If you make renovations, how does that affect the ownership percentage, and what kind of approval do you need from him first, and how do you get it, and how quickly does he have to respond? If he wants to do something to maintain his investment, such as reroofing, how does he negotiate that with you -- especially if it's something that requires access to the inside of the house? Who is the insurance paid by, or will each of you be insuring it separately? What are the tax implications? Consider EVERY possible outcome; the fact that you're friends now doesn't matter, and in fact arguments over money are one of the classic things that kill friendships. I'd be careful making this deal with a relative (though in fact I did loan my brother a sizable chunk of change to help him bridge between his old house and new house, and that's registered as a mortgage to formalize it). I'd insist on formalizing who owns what even with a spouse, since marriages don't always last. With someone who's just a co-worker and casual friend, it's business and only business, and needs to be both evaluated and contracted as such to protect both of you. If you can't make an agreement that you'd be reasonably comfortable signing with a stranger, think long and hard about whether you want to sign it at all. I'll also point out that nobody is completely safe from long-term unemployment. The odds may be low, but people do get blindsided. The wave of foreclosures during and after the recent depression is direct evidence of that. How about a third approach: Figure the buyout as above. Figure what percentage of the value of the house the buyout constitutes. When the house sells the other party gets that percentage of the sales price. "Presumably the existing house has some value. If you demolish the existing house, you are destroying that value. If the value of the new house is significantly more than the value of the old house, like if you're talking about replacing a small, run-down old house worth $50,000 with a big new mansion worth $10,000,000, then the value of the old house that is destroyed might just get lost in the rounding errors for all practical purposes. But otherwise, I don't see how you would do this without bringing cash to the table basically equal to what you still owe on the old house. Presumably the new house is worth more than the old, so the value of the property when you're done will be more than it was before. But will the value of the property be more than the old mortgage plus the new mortgage? Unless the old mortgage was almost paid off, or you bring a bunch of cash, the answer is almost certainly ""no"". Note that from the lienholder's point of view, you are not ""temporarily"" reducing the value of the property. You are permanently reducing it. The bank that makes the new loan will have a lien on the new house. I don't know what the law says about this, but you would have to either, (a) deliberately destroy property that someone else has a lien on while giving them no compensation, or (b) give two banks a lien on the same property. I wouldn't think either option would be legal.  Normally when people tear down a building to put up a new building, it's because the value of the old building is so low as to be negligible compared to the value of the new building. Either the old building is run-down and getting it into decent shape would cost more than tearing it down and putting up a new building, or at least there is some benefit -- real or perceived -- to the new building that makes this worth it." "In some cases perhaps, but in others not.  Several homes near me were sold over and over again during the bubble years (at incrementally higher and higher sale prices) -- the last owners in nearly all cases defaulted and the banks (after dragging their feet for a couple of years) finally foreclosed and sold the homes off cheap.  In all but one of the ""distressed sale"" cases, the people buying the houses now ARE in fact moving into them as their primary home (the exception being a current resident who bought the adjacent home with the intentions of fixing it up &amp; renting it out, I believe at least initially to a family member); but in ALL cases (in no small part due to the fact that they were able to purchase the properties cheap) these new owners are investing substantial money into fixing them up (new roof &amp; gutters, new windows &amp; doors, paint and/or siding, often all new carpeting, some landscaping, etc).  Also, from the perspective of our homeowners association, all of these new people think our annual HOA fees are a ""bargain"", whereas the previous bubble-era ""homeowners"" (if, having invested almost nothing, they could truly be called that) did nothing but whine and complain (well, and once they began defaulting on their mortgages, they also defaulted on their HOA fees).  So it's a win-win for our neighborhood. We're getting good, solid residents who are planning on taking care of their properties... the exact opposite of what you are claiming.   (The ""house-flippers"" you decry were the ones buying with ""no money down"" during the bubble era -- and they nearly killed the neighborhood.)" There's also the option to put most of your stuff into storage and rent an apartment or go to an extended stay hotel.  Some apartments have month-by-month options at a higher rate, though you may need to ask around.   I've known some people to use this as their primary plan because it was easier for them to keep the house clean and ready to show when it's empty.  Basically, this option is to sell your current house then buy the new house with a (hopefully fairly short) transition time in the middle. No. You have to reimburse the current mortgage you have and negociate a new one for your new house. A mortgage is a loan from a financial institution that accepts to give you money if you pay it back the total amount adding interests. Interests are the price you pay to the financial institution for it to give you money for a while. In the mortgage you have an legal agreement with the financial institution on how to reimburse the total amount that is given to you for a while. Breaking that agreement is breaking the law. The fact of the matter is that when 30% of your mortgage is reimbursed, the financial institution own your house, legally, for real, at 70%: your live in the house own by the financial institution at 70%. It is the same exact logic for a car loan. The mortgage goes with a specific house at a legal address that you live in as a primary residence. Another possibility that you might consider is to find a renter for your current place and move to your destination. If you have a lease for your renter, your mortgage company can consider that as income for approving the purchase of a new house. I did something similar when I purchased my current home, but I was also able to get approved without selling or renting the old place. There's no reason that someone couldn't create a house swapping site for longer-term than a week. It may not initially have as much demand as a 1 week swap, but there are no such existing services that I am aware of.