What would you do???? I need help!

Hi all and thank you in advance for any suggestions you can offer.

Here’s the situation:

I own two homes in AZ. One is paid off. The second one is a home I purchased last year (almost exactly a year ago) and originally it was going to be a downsize for my wife and I that we would re-sell after about 5 years for a profit and then buy our final retirement home. We had planned to sell our primary residence (the #1 home) and move into the smaller home (#2) and it was financed as a primary with an interest only for 7 years. We never intended on keeping it that long and I was talked into doing the interest only because prices in AZ were rising so fast. The house HAS appreciated about 100k over the past year, actually. However, a month after we purchased the second home, our daughter was injured and needed to move here from CA and we had second thoughts about selling our #1 home in case she needed to live with us (and she has all this past year). We have done a little rennovation on home #2 and basically we just didn’t know what to do with it. We have talked a few times about my daughter moving into it but healthwise, she’s just not quite there yet…it will be at least a year before she can be on her own.

Last month I was approached by a good friend about renting the property (#2) to a family member of theirs who is very trustworthy and we know will take care of the house. This is not a typical rental situation – there are no worries. We decided to go ahead and rent it for the year and then decide what to do with it after the year but I’m afraid we are just getting deeper and deeper into a pickle.

The interest rates are going up daily it seems and I am really uncomfortable with having this interest only loan so I would like to re-finance. But I’m not sure if we should? If I don’t refinance and the interest rates continue to climb and some day we aren’t able to sell it, we could lose our shirts and this scares me.

We have also talked about selling it to my daughter but a bank will not give her a good interest rate…it would be high and she can’t afford that. The other thing we could do is keep the house in our name and she could live in it after the rental period we have set up already but then when we go to sell it a few years down the line we’ll get hit with the tax because we aren’t living in it as the primary residence if she’s the one living there.

WE just don’t know what to do. Our plans didn’t work out at all like they were supposed to and now we have a second home that seems to be a bigger problem daily.

So my questions are these:

  1. Should we try to refinance and if so, how do we do that? It’s not our primary residence but it’s also not exactly an investment property? Would it make sense to just borrow money on our #1 home and pay off the #2 so we can do whatever we want with it???

  2. If we rent it (and actually we really will need to because I agreed to this), after the rental period is over, can I move my daughter in and somehow sell the home to my daughter for basically FREE and get her name on the deed or??? and make her an owner so when we sell it, if she’s been there for two years she won’t have to pay taxes?

  3. Somene was mentioning something about trusts to us but can someone here tell me if this would have any benefits for our situation?

  4. Providing we can’t get my daughter in as an owner, when we do sell it in a few years, will we be able to avoid the taxes by buying another property for her to live in??

ANY HELP is much appreciated. We are just so confused and it’s not like we have a real estate lawyer at our beck and call so anything you can suggest or offer on this situation is helpful to us more than you know.

Thank you so much.


When dealing with mortgages, there are generally two states, “Owner Occupied” (O/O) and “Non-owner Occupied (N/O/O)” there is no “not exactly an investment property” category. The lender will look at this as a N/O/O. My lender raises my rate about .25% for this. If you borrow against your primary residence you will either take a second or a HELOC. Either would probably be less expensive short term and more expensive long term for the 2nd property.

Here’s and option: You could sell it to your daughter with seller financing and then after X number of years (like 5 or 7) have her refinance when her income may be higher or she could sell it…you would still have income from the property, she would be on the note and title, could sell and not pay capital gains after 2 years…


Dump it!!! If you have $100,000 in potential profit on this home you hit a home run. Sell it. Pay your taxes with a smile, and buy the same house back 3 years from now at a $25- 35% discount when the market moves down. And here’s why it WILL happen. Right now the US finances it’s dept on the backs of foreign investors. The problem is that interest rates in other countries are starting to rise, money is coming OUT of this country and flowing into those countries at a increasingly higher rate. In order to slow that, THE MARKET, NOT THE FED will increase rates to keep a reasonable balance. Get out of that interest only NOW!!! The market in New England (where I live) is seeing 20% - 30% price reductions everywhere. People who are buying are waiting to see how much lower prices will go, and, they’re still strapped because of the run up in rates. Each 1% rise eliminates 30% of potential buyers. Last week in the local paper I counted 52 foreclosure listings. 80% of those properties were purchased in 2005! Can you say Kaboom! Don’t wait till it happens there. Sorry for the gloom. Just my opinion. 22 years investing in real estate and have seen some rough market reversals. It comes down to this… How much more upside do you see in your market? If you have, let’s say a 70% return on your investment why would you risk that for another 10%. This is what a 70 year old man told me when I got started… Kid, this ain’t rocket science. Buy=when no one else wants to, and sell when everyone wants to buy. This man had a 6th grade education and owned about $75 million in commerical real estate along with 12 Dunkin’ Donut franchises. Great mentor!!