I live in a subdivision that was built in the 70's. Four years ago I purchased a house that was in rough shape. I ended up doing a total renovation, it turned out great and I have a lot of equity. During that time I built a relationship with my neighbor (widower) behind me. After some medical issues she decided it was time to move into a retirement home.
I don't have the money to do a full purchase, but I would like to work out a deal where I renovate/modernize her home (it is the same layout as mine), then when it is sold I get a percentage of the profit. I'm fairly certain she does not have a mortgage on it. My plan:
1. Get current appraisal
2. Renovate the home
3. Sell it - I would get back what I put in + a percentage of the final price minus the original appraisal
Example (60% to me):
$175,000 - Original Appraisal
$35,000 - Cost of Renovation
$275,000 - Sale Price (after paying all real estate fees)
$65,000 - Total profit
I would then get $35,000 back for materials then $39,000 of the profit.
1. Would it be reasonable to approach her with the offer. I would include her daughter in the conversation just to make sure the family is ok with the situation.
2. What would be an appropriate cut of the profits to take? Would 60% be too much, too little?
3. How do I properly protect myself in the transaction? Add myself to the title via quit-claim? Standard contract?
Thank you for the information.
I've done something similar. My clients needed to get out of their home as they has already rented another property. We knew the FMV of thier home currently. I agreed to guarantee their net based on the FMV minus closing costs and take over their payments, utilities, etc. We then rehabbed the property and sold it for about 50,000 more than the original FMV. When we closed, we settled out the bills and they cut me a check after the adjustments and their guaranteed net. They did not share in the profits. However you work out the details is great but my advise is to be specific about what you will give them. An elderly women may not want to fuss with share of the profits. Just figure out a clean number and tell them you take on the rest of the risk. You can protect yourself by either having a valid contract to purchase the property at that price and/or a memorandum of agreement that can be recorded on the property. Consult an attorney with the pluses and minuses of using either of these. Good luck.
Maybe you could offer $185k with vendor financing with payments not starting for 6 months. They (family will want to control the decision) would make an extra $10,000, you wouldn't have to qualify for a $185k mortgage, you might be ready to sell before your first payment is due, and although you'll pay her more for her house (benefitting her), you'll make $55,000 instead of $39k. And you'll hold the title which would make me more comfortable.
I'd find a real estate club or try through this site to find a lawyer who specializes in investment real estate and not do anything without their blessing. Before you spend the money on the consult, run it by the neighbours to see if they are willing to sell to you if you could pay $10k more but they wouldnt receive the money until later.
@Patrick Durham Sounds like a reasonable plan, and if she/her daughter won't go for it, there's plenty of passive investors who will put up the down-payment and line up short term financing in exchange for 40% of the profits - then you could just buy it outright and be on your way.