Partnering with the seller

I have a seller I am talking to, seems to be a pretty decent deal. What is even sweeter is she is willing to make payments on the house while we are fixing it up, then split profits at the sale.

I am having a hard time structuring this deal. Should I get some sort of contract and get deeded onto the property? How would some of you structure this. I obviously don't want to fix the property up, then have her somehow go around us and sell the property herself. I have never done a deal close to this.

What would you all do to make sure this works out as described?

Edited: 06/26/2010 at 04:53AM

Jason Cummins

Real Estate Investor · Katy, Texas

430 posts
32 Influence
2 Awards

Icon_minipost Mar 19 '08, 10:16 AM

Nothing? Anyone?

Note that this would not be a subject to deal, she is willing to pay the mortgage as long as we fix the house., then split the profits at the sale of the property.

Edited: 06/26/2010 at 04:53AM

Susan Flowers

Residential Real Estate Agent · San Bernardino, California

7 posts
35 Influence
1 Award

Icon_minipost Mar 19 '08, 12:16 PM

It sounds sweet but what if she has a change of mind after you fix the property.She may decide to continue to live in it even if you are deeded onto the property it does not gaurantee that she will sale.

Things to consider:
Why has she decided to sale?
Divorce
Job transfer
Death in family
Foreclosure
Loss of job

I have never experienced an investment like this but I have seen some situations similar and when money is invoved people get greedy.Hopefully someone in this forum can give you some good advice I'm curious to know how you'll work this deal. I believe the more you know about the sellers situation you'll be able to make a better decision based on the info you've gather.

I'm sure there is a way to stucture this deal, a contract is definitely important someone will help you out here in this forum.Be patient for a response.Best wishes!

Edited: 06/26/2010 at 04:53AM

Jon Holdman

Real Estate Investor · Denver, Colorado

11859 posts
75537 Influence
15 Awards

Icon_minipost Mar 19 '08, 08:45 PM

Is the seller wanting to stay in the house? Are they willing to give you a deed? This just seems fraught with potential problems, mostly around the seller trying to go back on the deal after you've invested the time and money.

I think the most straightforward way would be to structure this a subject to deal with an equity share to the owner when the property sells. You buy the property for its current outstanding loan balance and take over the loan. You pay to fix it up and make the payments. When it sells, the existing loan is paid off, and you get paid back for both the payments you've made and the investment you've made into the rehab. Whatever's left gets split between you and the seller.

Even if you let her make the payments, I think you should still structure the deal this way. If she makes the payments, she gets paid back for those. Your net is the same, but you're not out of pocket for the payments.

Now, she may balk at having you own the property while she makes the payments. So, maybe you could create an LLC. She contributes the encumbered property and makes the payments. You contiribute your time and money for the fixup. After sale, the property gets paid off, and you each get back what you put in. Then, the LLC is wound up and you split the remaining cash 50/50 (or whatever.)

Jon

Edited: 06/26/2010 at 04:53AM

Jon Holdman, Flying Phoenix LLC

Jason Cummins

Real Estate Investor · Katy, Texas

430 posts
32 Influence
2 Awards

Icon_minipost Mar 20 '08, 12:49 AM

It's a second house. And they are getting a divorce. They do not live in the house, no one does, in fact I just went over there and it is not livable.

I was thinking the same thing as you wheatie, structuring it as a subject to deal and then split the profits at the end.

After seeing the house today though, the deal might not work out. It's ARV is 120,000, her loan balance is $50,000, and it needs A LOT of work on the inside of the house. I have my dad going over there this afternoon (he's a contractor) to get a good solid estimate. From what I saw I would estimate anywhere from $35,000 - $50,000 worth of work on the house, so it may not be worth it anyways, unless I am able to structure a short sale with it, if she is willing, yes she is behind on payments.

Edited: 06/26/2010 at 04:53AM