Creative Finance Help?!?

Question

Hi everyone, I’ve got an extremely motivated seller. The problem is the family wants more money than the property is worth without the necessary renovation to support the cost. Im working on convincing the seller to transfer title and I assume all maintenance and renovation for a 6 month period to flip the property and get the seller what he is wanting once the property is sold or we do a cash out refi (if held). I first have a few questions for anyone that has successfully completed creative seller financing deals

1. Once the property is in my name free and clear are there instances where banks will view the property as an income producing asset and lend the renovation cost just using the property as collateral rather than require down payment for the loan?

2. What are typical partnership structures if I don’t go the bank route for deals like this? If I bring the property, will other investors typically be ok with fronting the entire renovation cost (so long as the numbers make sense) and split profits 50/50 or does the partner who fronted renovation usually receive more than a 50 split?

Thanks

Lionel Mosby Jr · Answer

Hey! What did you decide to do on this deal? Did you move forward with the hard money lender or find private funding for the rehab?

Kenyon Berry · Answer

@Joe Homs Awesome advice! Thank you for your help

Joe Homs · Answer

@Kenyon Berry I guess my first question is why you would purchase this home if its "more money than the property is worth?"  My next question is the seller doing 100% carryback?  (The more they do the more valuable this deal is.)

Let's try and answer your questions:

1. Once the property is in my name free and clear are there instances where banks will view the property as an income producing asset and lend the renovation cost just using the property as collateral rather than require down payment for the loan?  If the property is 100% encumbered then how can the bank loan you any money?  I would suggest finding a money partner to put up the money for the rehab and share the profit.

2. What are typical partnership structures if I don’t go the bank route for deals like this? If I bring the property, will other investors typically be ok with fronting the entire renovation cost (so long as the numbers make sense) and split profits 50/50 or does the partner who fronted renovation usually receive more than a 50 split? You should acquire the property under a land trust with your LLC as the beneficiary.  You are then able to change the beneficiary when you get a partner easily.

I would suggest the following:  Get a hard money lender to loan you money on the property when you purchase the home.  They will want to be in first position.  Place the seller in second position. The hard money lender will probably place you on a "Draw" which he will release the money as the flip progresses.  If you do this you can do the whole deal by yourself and keep all the profits.

Good Investing...