Making a non-traditional deal

3 Replies

Hello:

 So, I have a chance to make a deal for a few rentals, but I am not sure the best way to structure it to satisfy both sides.  Here is the situation, I have a colleague who owns a handful of rentals and is looking to get out of handling them and retiring.  He has talked to me about managing them for him, but he really wants to completely disengage from them completely.  He has offered to sign the properties over to me and then collect a percentage of rent from each until he is paid a certain amount for each one.  He is looking at a term of approximately 15 years or so to pay him for each one. 

I believe he is looking to handle things this way to prevent paying a bunch of tax on his gains and he actually wants to help me to be set-up to be successful.  

I currently have one property that I rent in the same market, my wife is a licensed real estate agent and we have good reason to trust this individual. 

I am looking for feedback regarding issues that may arise from a deal like this and any suggestions to help it work as intended.

Thanks!

This sounds great. There are lots of sources for promissary notes here- check Erik Stark's website, I think he has one up for free. Get it reviewed by an attorney in your area that focuses on real estate. What you are talking about is basically an equity-only note, where you pay a set amount monthly, quarterly or annually (whatever works for the two of you). 

Then close on them with your local title/attorney's office and make sure the change is filed with your county (the closing experts will do it). Congrats, I would love a deal like this.

Or reduce them, anyway. I've heard there are some complexities to "no interest" loans. The seller should talk to his tax specialist about how to set it up best for his situation. As long as you both like the numbers, that's what matters.