What would you give the seller?

Question

I have a seller who owns a property free and clear. The house is wrecked and the seller doesn’t have the time or $ to rehab the property.

I’m considering doing a JV with him since it’s a family friend. He owns/holds the property and I will put up the $ and time to get the work done.

In this scenario, what would you offer the seller over and above what the home is worth in its current condition?

Michael Sessa · Answer

@Steve Mikrut agree on the as is value of the home now.   After you put the money up and fix it, he gets the agreed upon as is value of the home  since it’s his and you never bought it from him — plus he gets a percentage of the profit.  I don’t see why you wouldn’t split profit 50/50.  You put up the money , yes, but he owns the house and you did not have to come up with any $ for the purchase.

Alan Grobmeier · Answer

@Steve Mikrut, you will probably find out how good of a friend of the family he is after this transaction.  ;-)

In all honesty, I would not give him a dime.  He owns it 'free & clear'.  Come up with a 'baseline' number, say $50k.  Then determine the split of $$$ over 50k.  Since you are doing the work and have the most to lose, I'd go 75/25 or 60/40.

Property sells for 100k (example).  He gets his 50k 'baseline' out of it plus 25% of the remainder, 12.5k.  You get the remainder @ 37.5.

With this type of deal you need to be able to agree with him on sales price, how long on market, etc., or you could easily get screwed.

Hope that helps!

Steve Mikrut · Answer

Alan, excellent feedback. I hadn’t considered agreeing on the final sales price up front but I see how that could be a point of contention at the end. Thank you.

Steve Mikrut · Answer

@Steve Mikrut

I forgot to mention this would be a Fox and flip. Maybe even a seller finance