Legal Question in Real Estate Law in California

Your questions show confusion as to real estate matters. If you are buying a property with the intend of renting it out, you are not a homeowner with respect to that property but rather an investor. So you can not get an FHA loan.

There is no connection between your parents making a gift of one property to you and you making it like it was an arms length [honest] sale by them to you. if you get property X from them, for tax purposes the basis in determining capital gains is their basis in the property, which if they bought it a long time ago is not very high. Normally it is better to wait until they die and than the proprety goes to you with the basis being whatever the fair market value was at their date of death.

If you give them the money to pay off the loan on their residence, it is a gift and does not increase their basis in the house. If the $250,000 exclusion form capital gains tax is still around when they finally do sell it, that might not matter [but I have no idea what their basis in the house is and how much it has appreciated]. You also must consider whether the interest rarte they are paying is less than what you could earn on an investment. If you have $100,000 to invest, you could probably find a reasonable safe 6-10% investment.

If you buy a property from your parents, the IRS will look to see if it was an arm's length sale --was it a reasonable price. Since you want to tie into something totally unrelated, it clearly is not an "honest" sale. If they audit you, you will have no real defense and drag your parents into being audited and probably having a penalty imposed on all of you.

Iif your parents sell the property to you, they have to pay capital gains tax on the profit; there wil be escrow fees and count/city transfer taxes,but if you file a parent-child transfer form, the property should not be re-assessed. When you sell it, you will pay more in taxes than if you had inherited it. From a tax viewpoint it probably is better that they give a gift of money to you. The three of you should probably go to a tax or probate attorney to determine what is the best approach. All three of you need to first read some books [Nolo Press has some good ones] on the subject as you clearly need the information.

[not proof read]