Seller financing and profit split question

2 Replies

Hello everyone,

I am BRAND NEW to the real estate investing arena and have a question about how I am trying to structure my first deal. I located a house in Miami that the seller bought at auction and is asking $170,000. The house is a 2/1 with about 1300sf and a huge lot of about 11,000sf. The ARV seems to be around $200,000-$210,000 and there is about $20,000-$25,000 in rehab. I am not wanting to come out of pocket at all and have found a hard money lender that will provide 85% of the purchase and 100% of the rehab expenses at 10% interest. I am trying to see if the seller will hold a note for the remaining 15% at 8-10% interest only and then offer him 15-20% of the profit. I obviously want to get the purchase price down as low as possible but am not sure what would be a good price to still be able to profit in the end. I was hoping to get them down to about $125,000 but I don't know if they will go that low as they "claim" that they have an offer for $155,000. I don't buy it because they are still negotiating with me. Is this a good deal at $125,000? What if I go to $140,000 to try to close this deal? I want to profit but I am mainly looking for the experience. Thank you all for any suggestions.

At $170,000 it is not a deal you have $25k in rehab and then you have Realtor fees, make sure your math includes Realtor fees, holding costs, and taxes as well as just rehab, they aren't selling it to anyone at $170,000 if the rehab really is $25,000.

Hey @Steven Cosner  

Welcome to BP! I think what you are proposing might scare the seller away but if it is all you got I would at least give a try. Before anything you need to really break down the numbers. I may be incorrect but I am interpreting that you are throwing out purchase prices without doing any calculation prior. What is the scope of the work? How long would it take to get completely renovated? Then how long are most comps sitting in the market? Use this to calculate how long you will be paying in interest and factor that into your profit loss. 

Ask a couple realtors what the comps for the property are and what they think it could APPRAISE for when remodeled. Financed buyers will be unable to finance a property above the appraisal price so that estimate is extremely important. Use that appraisal value to estimate commission, closing costs, etc and then run your numbers and find the purchase price that would give you a comfortable profit. 

If I were you, I would find an equity partner to fund the remaining 15% and offer him whatever number will give him an adequate return on his money at the closing table. Hope this provided some insight. 

Happy Investing!

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