Need a Financial Wiz to answer this Mortgage Investment Question?

Last year we listed our home on the market for $475k but didn't sell. The market value of our home is now worth approx $400k (declining everyday). We know that right now is NOT a good time to sell. (We don't Have to either). But we would like to Buy a home since it is a good time to buy. (And we need the space). We owe $125k on our mortgage.

My parents are seeking to invest money in the real estate market. Coincidentally they have approx $125k to invest in a rental property. (They are looking in Texas because it is cheaper than California).

If it is a wise investment for both parties, I would like to be partners on my home. I would need SOME money (50k?) in my pocket to buy another home.

Ideally:
Both parties would have a monthly positive cash flow on the rental. This place could rent for $2200/month.And there is an HOA of $350/month.

Both parties would gain equity when we all do decide to sell.

Any Advice?

To clarify:
I want to rent out my present home (a townhouse). I could easily rent it out for $2200/mo. I owe $125K (my payments are $1350/mo. This is the property that I somehow want to share ownership with my parents. Currently, My husband and I are the sole owners.

The home I want to buy would have nothing to do with my parents.

I hope this makes a little more sense.

I am not sure what your question is.

You and your parents want to buy you a large house together?

Rent out your present house and somehow share the "profit"?

I am not sure what you are doing, but you may be dreaming about positive cash flow.

Remember, once you rent that your mortgage is no longer a tax deduction. With such a tiny mortgage that may not be a problem. The 26,400 you collect in rent each year is added to your income and you have to pay income taxes on it. If you pay the HOA fee and not the renter you do get to deduct this as a business expense.

I am clueless on how you are sure that both parties will be gaining equity. The market value has to increase for that and I do not see that happening any time soon in Texas.

First off, you're in a good position to buy. I'd set up an LLC to purchase the home, or if not, at least make sure you buy the home as Tenants In Common with your folks so that you each know what percentage of the home you each own.

Then go out and make some money!

This can work, but the drawback you will face is this: most mortgage companies require at least one year of rental history being paid to you before they will deduct that amount from your monthly debt for ratio purposes. If your parents are going to buy out the mortgage entirely, so there is no loan on the house, you can move ahead with purchase with no problem. If you will still be making a mortgage payment on your 1st home, that amount will count against you in figuring your loan amount

You can add your parents to the title of the current home that will become the rental property for their stake in it. If your parents are paying cash, then use some of the proceeds to put a down payment on the new home. If they need financing than you can look at a new mortgage with your parents for what you owe plus the 125K they are borrowing and all of you will be on the mortgage and title and you can take the cash out from that refinance to put down on the new home.

I would not suggest buying a new home in a LLC since most lenders will not lend to a company. There is no benefit to do this as was suggested in another answer.