You can buy the property from your father and claim interest on housing loan. The only issue is that there will be additional registration charges for the purchase of your dad's flat. Instead, if you can get the flat gifted to you by your father ( after taking into consideration your family issues, if any), then the registration charges will be lower compared to the registration charges payable on the registration of a sale deed. You may then take a mortgage loan, though it may cost slightly more than regular home loan. As you intend to let it out the property, there should not be any problem in claiming the interest in the income tax, whether it is a home loan or a mortgage loan.
You need to balance out the costs involved in registration of sale deed vis a vis gift deed and interest on housing loan vis a vis mortgage loan.