Seller Assisted Flip?

Question

Has anyone ever worked with a Seller to flip their home?

Here's what I'm thinking... Seller has a single family house worth about $60k as-is.  He owns it free and clear with no liens.  I've offered to buy it for cash for $60k - they rejected my offer. The house has a ARV of $200-$220k.  Is it OK to offer to partner with the Seller by offering $60k to rehab the place and to list it myself?  I'm a licensed Realtor/Investor.  In essence we would split the proceeds after its sold.  We would both have $60k into the deal for a total of $120k.  After it's sold at say $200k, we could split the $80k evenly.  
Has anyone done anything like this "seller assisted flip"?

Bill Gulley · Answer

Terrell Williams, when you look up net listing, as an agent, you need to look at the spirit of the law/reg, that any scheme that nets a profit between a sale price and what an owner gets is a net listing arrangement. Realtors take a flat amount or commission based on an agreed sale price, net listings charge a fee that is netted from a sale price giving the owner what ever is left over. Stating an amount that an owner gets and then selling for more with the "more" going to an agent is a net listing. :)

It is always best to stay as close as you can to conventional arrangements, there is plenty of room to get creative in certain areas while being conventional or traditional in structuring deals, 1,000s of ways, the problems come in when investors attempt to get creative without having the basic requirements (sometimes more advanced requirements) that attempting to be clever and mixing up, say notes and liens as a means to control a property,gets you in trouble as most of the clever ones don't understand basic legal aspects or other issues. Gururs only compound the problem as they are always in search of some twist that can be turned into some product. So, as you mentioned "my creative financing" you need to stay away from devising anything really as there are ways of doing things that work well and have been done for decades, there is nothing new in RE and we really don't need anything new....  :)

Terrell Williams · Answer

Bill Gulley: I appreciate that advice. I'll look up "net listing" to determine how this might work in cooperation with my Broker.  I already have an LLC for dealing with investment properties, but its new and I haven't done my first deal yet.  I certainly don't want my "creative financing" to get me into trouble!

Bill Gulley · Answer

.....You are a Realtor! Look up "Net Listing", just a little issue that will bite pretty hard on an agent and probably your broker after s/he finds out what went down.

Get with your broker and see how to structure any partnership.

Probably the best way to avoid the issue is to have you and the owner form or join into an LLC, put the property in the LLC, you can then work out your "split" inside the company as a partnership rather than you performing functions and attempting to share in profits.

A better way is for you to buy it, do it and sell it, that is not an issue.

If you are a contractor or can work with/under one, you can contract for repairs and be paid at settlement.

Go see your broker... :)

Steven Hamilton II · Answer

That is one great way to flip a property; however, your contract must be ironclad to protect you.

Mike B. · Answer

I offer something similar to this, but it's designed more towards people with equity losing their house to the bank (sale date is within a month when they get the letter). I'll copy and paste the option...

Option # 2: Joint Venture- I will purchase the property from the seller(s) "subject to" their existing loan(s). I will reinstate their mortgage(s) and make the monthly payments on their mortgage(s) for up to the next 12 months.
The seller(s) will sell me their property for exactly what their actual mortgage payoff(s) are including arrearage and fees. They may continue to reside in the property for up to the next 12 months without paying any monthly payments including but not limited to mortgage, taxes and insurance.
The seller(s) shall pay all utilities while residing in the property. While they continue to live in the property after deed has transferred to me, the seller(s) agree that I as the new owner will list the property with Michael Baker at New Market Realty Inc. at fair market value.
Mr. & Mrs. Sawala agree to show the property to prospective home buyers and once a ready, willing and able buyer has been procured, I will sell the property to that party & Mr. & Mrs. Sawala shall vacate the premises no later than the day of closing. The excess funds or profit from the sale shall be split evenly 50% to the Sawala's and 50% to me.
All mortgage payments, taxes and insurance payments tendered and or paid by me or my company shall be reimbursed from the Sawala's 50% share of the profit to me or my company at the time of closing the sale of the property to the end buyer.

Terrell Williams · Answer

Michael Siekerka - Thanks for that insight.  I agree, the terms of this deal need to be airtight and drafted by a real estate lawyer.  I understand that there are a number of other costs involved.  However, there are no bank fees, title fees, broker/lender fees on the front end of the deal.  The holding cost will be minimum since there is no mortgage on the home.  We will need to determine who is the "decider" to use a George Bush word - when it comes to making rehab decisions.

Anson Young · Answer

It works, I know a guy who does this with seller financing or sub 2 as well.  You are bringing the rehab funds, they keep or finance the mortgage, with sub 2 the investor takes over the payment.  When re-sold, profits are split.

Michael Seeker · Answer

I like the idea a lot from a buyer/rehabber's perspective.  I would think that you'd need to get the seller to verbally agree to this then draw up a very airtight contract or option agreement with a lawyer that outlines every last detail including upkeep, holding costs, commissions, decision making process etc.

I'd love to hear more details about this if you can make it work!