Partnering with the Seller

6 Replies

Would you Partner with the Seller?

Scenario: Seller Bob bought a property using hard money for $30K and is now selling for $60K, not MLS but on CL's. Bob's hard money loan is a 12 month period and payments not due until the end, Bob is about 5 months in. ARV is about $80K and rehab is about $20K. Heavy rehab, no electrical, no plumbing, etc.

Bob is willing to take equity if I bring in the rehab costs and manage the rehab.

Question: How would you structure this deal?

I don't understand the "deal". You are buying for 60K and need to put 20K in for an ARV of 80K? That is no profit for you.

Where I am from "heavy" rehab is not 20K

@Marco Zacarias

I’m wondering how or if you proceeded with this plan. My assumption is that you mean to put up $20k towards rehab in exchange for $15k (or 50% of seller’s gained equity).

I.e. Bob would sell at $80k. Then Bob gets back his initial $30k investment, you get back your $20k rehab expenses, and the net profit is divided equally. Did I get that right?

We have partnered on a couple similar deals, but to be honest we just drew up an informal term sheet which we both signed. There was no attorney involved in our agreements.

If you did your homework and are sure of the rehab and ARV costs, seems like a win-win. Just be careful of both of those numbers, and not to get overly optimistic with them...

@Eric M. @Jesse Swagerty As I continue on my path to build capital, I was glad to hear the seller was willing to hold the sale, allow me to rehab the property and we split the profits at the end without charging points, interest or any type of fee. But after seeing the property in person, the rehab looked more like $30K-$40K and it turned out that building square footage was only half of what was advertised. ARV dropped, I walked away. Duplex is still for sale.