Split funding/Equity partnerships

Buying & Selling Real Estate
4yFollow

Split funding/Equity partnerships

Kwame Knights
Rockville, MD · Member since 2017 · 45 posts · 11 votes

Has any seen the show "Unsellable Houses" on HGTV? The premise of the show is basically the investor partner with homeowners who are having a difficult time selling their "UGLY" homes by helping them renovate/update it before putting it back on the market fully updated and getting full market value for it. Once the home sells the investor subtracts their rehab cost, the sales cost and then they split the profit. For example property listed for 250k (what the seller wants) but its not selling, the house needs about 50k of work and the ARV is 400k.

400k New sales price -(30k sales cost) - (50k in rehab) = 320k (gross)-250k (minimum seller wants) = 70k overall profit.  The 70k is then split between the seller and investor. So seller now gets 285k. The investor gets 85k with a 35k net profit. 

This concept appears to be a win win for both the homeowner and investor. The homeowner makes way more money than they would selling an "Ugly" House and the investor makes atleast a 50% return on his money spent and doesn't have to worry about buying the house and all the other associated cost.

I've heard this concept being referred to as split funding, profit split or Equity partnerships. Have anyone actually done this model, what are the cons?

0Reply
24 views

4 Replies

Jump to latestLatest
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    4y

    The cons are you need to get a seller that is technically willing to take a very low cash price as is with the HOPE that they can make more after rehab

    then you have to connect that homeowner with a contractor who has this vision, will show up and do the work to a high degree, and be willing to front all the money with the same HOPE that they will make more once it sells. 

    Great idea for a HGTV who has a massive budget and national network of potential homeowners and contractors to facilitate all these things, but on a small scale I can see this as being extremely difficult to execute. the idea is technically sound, but like many things in real estate it's super easy on paper but real life doesn't always pan out the so simply. 

    [email protected]Podcast Guest on Show #301
    0Reply
  • Kwame Knights
    OP
    Rockville, MD · Member since 2017 · 45 posts · 11 votes
    4y

    Hi Alexander,

    Thanks for your feedback and perspective. I'm looking at it as an additional tool to add to my tool box, almost like another creative financing option. I'm running into older home owners, and estate sales etc. whose properties are priced too high and investors are submitting alot of low offers as no one wants to overpay for dilapidated properties. These properties tend to sit on the market for months vacant and are prone to vandalism or if they are living in it and don't have money to maintain it correctly it will eventually deteriorate further and then they eventual accept the low offers. 

    So yes I would have to convince the owner to look at the bigger picture and accept the lower price sooner than they are comfortable with, and a promise of a bigger payout. And my job is to come with the vision, rehab funds and contractors to make the necessary improvements in a short time frame so the property sell at the higher valuation. 

    And I agree with you, TV always make things really simplistic and leave out the details. So I'm hoping to find someone who has successfully done this in real life. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Originally posted by @Alexander Felice:

    The cons are you need to get a seller that is technically willing to take a very low cash price as is with the HOPE that they can make more after rehab

    then you have to connect that homeowner with a contractor who has this vision, will show up and do the work to a high degree, and be willing to front all the money with the same HOPE that they will make more once it sells. 

    Great idea for a HGTV who has a massive budget and national network of potential homeowners and contractors to facilitate all these things, but on a small scale I can see this as being extremely difficult to execute. the idea is technically sound, but like many things in real estate it's super easy on paper but real life doesn't always pan out the so simply. 

     it works because of TV and the notoriety..  try that on the average persona and average investor  going to be next to impossible to talk someone into this

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    4y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Alexander Felice:

    The cons are you need to get a seller that is technically willing to take a very low cash price as is with the HOPE that they can make more after rehab

    then you have to connect that homeowner with a contractor who has this vision, will show up and do the work to a high degree, and be willing to front all the money with the same HOPE that they will make more once it sells. 

    Great idea for a HGTV who has a massive budget and national network of potential homeowners and contractors to facilitate all these things, but on a small scale I can see this as being extremely difficult to execute. the idea is technically sound, but like many things in real estate it's super easy on paper but real life doesn't always pan out the so simply. 

     it works because of TV and the notoriety..  try that on the average persona and average investor  going to be next to impossible to talk someone into this

     Yep, that's what I said in my post, great idea but takes highly scalable resources to make it happen 

    [email protected]Podcast Guest on Show #301
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free