Seller Financing for a Rehab: Lease Option, Subject to or other?

5 Replies

I have a fire damaged property lead that is owned by a few long term landlords. They have multiple properties and are interested in getting out of the fire damaged one.

Given their familiarity with investing and rehabbing I want to offer them seller financing so that they can get a higher price from me and potentially share in the profits. 

I would want them to hold the mortgage in their name but I would pay holding and rehab costs. I would pay them for their "lending" at a percentage rate or potentially give them a share of profits after. Property would transfer directly from them to the final retail buyer.

What kind of contract am I describing here? Has anyone attempted this or seen it work?

What should I be worried about or watch out for?



@Nathan Baumgart: I'm not sure I understand what you are trying to say correctly. 

You want to have the property transfer directly from seller to the retail end buyer. So you don't ever take title? Then you want seller to hold a mortgage and is willing to pay a higher price. How are you going to record the mortgage without taking title?

If you were to take title, then I think the following could answer your questions.

Does that property have a mortgage? If it's free and clear, then I think you are talking about a normal owner finance transaction. If there's a mortgage, then a subject to deal.

I'm thinking this is a free and clear deal since they are willing to walk away. For fire damage property, the insurance company will usually pay the replacement cost to owner if property had no mortgage.

On a side note, when I had a fire damaged property, the insurance company paid me about 50% of the estimate repair within two weeks of the incident. So the seller in your case might take a low ball cash offer.

I wouldn't do a creative financing deal on this one. Just offer a super low ball offer and pay cash.

We are currently doing a rehab that was a fire damaged property. This rehab has taken much longer than we anticipated do to all the inspections that need to be done and the hidden issues that we did not know about until we starting tearing into it.  If the seller is experienced in rehabbing then why are they looking to sell and not rehab themselves. Is this going to be your first rehab? 

Great responses!

Thanks everyone.

Yes. They paid cash for the property and had actually just finished rehabbing it when it burned down. It had actually been on the MLS for 3 days and then some kids broke in and set fire to it.

They are older and simply don't want the process of rehabbing it to be something they manage. They want out and sound like they are moving towards liquidating more of their investments as they get further into retirement.

This would be our first deal yes. I am a Fortunebuilders student and a licensed broker with a background in residential contracting. No fire experience though.

Anyone have a link to a good guide to seller financing? I know the concept but don't have a short list of what to do and how.

Thanks again!


Regarding owner financed on a rehab property I would always get it subject to first get the deed. You can pay all cash with the joint venture partner or private money

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here