I have a deal in Milwaukee, WI where I can partner with the Seller to rehab his home and keep the proceeds over a dollar amount. The owner has a 1st Mortgage; a good ARV is there and the numbers work. What I'm wondering is how do I protect myself (My Money) during the rehab and afterward while the house is on the market?

Should I do a lease option and language within the option that protects me?

or

Should I take title to the property (somehow)?

or 

Other suggestions...

Man, I wouldn't chunk rehab money into a house unless I had the deed.  Just my 2-cents worth.  By the way, there's other deals out there.

I definitely wouldn't let a home owner share in the profits of a rehab/flip or be a partner especially if you aren't taking title.  What are the profit margins for you to consider this and how would you be protected?  Like Bryan said,  if you are thinking of this for $25-30k flip then look elsewhere.   Deals with those numbers are everywhere..... At least in this market. 

Im in a similar situation and would appriciate any advice given. -Kris

Talk to a lawyer write up a good contract based on estimates you trust. 

Well I am going to disagree.

An alternative to wholesaling is to do a joint venture with the home seller, where you don't buy it but offer to do a mild rehab,

let's say a house that needs updating, MILD REHAB, "grandma's house",

Say Arv is 200,000, needs 20,000 in work, I like probate houses for this, the heirs want quick solution.

Offer this to the seller,

Mr Seller,

we will do a joint venture,
I'll come in with my money and do the rehab,
pay the workers pay materials,
then will use my agent to sell, pay the commissions and the closing costs, and
then when the house sells I'll get a check for what it cost to do the rehab, and I'll charge joint venture fee, and
that fee depends on a few factors.

The mechanics are buy it sub2 or a note w no payments, own it
Get private IRA loan for the $20K
Place guaranteed profit JV agreement for you and the seller
Then improve it - list it at 97% of comps with a high producing agent - work with agent on improvements as far as what buyers want.

"The bottom line Mr Seller is you're going to have a house that many people want and will pay top dollar for,
you have a good agent that will sell the house quickly because it's priced correctly for quick sale, usually 60 to 90 days
you have a check in your hand,

To get started we need to sit down and do an estimate of all the cost to get the property ready for sale, and and give you a proposal

My solution will be to beat any "we buy houses" investor proposal by 20%."

While I usually think wraps are a bad idea, that is what I would do here.  It's short term and not keeping the loan open very long.  I'd have the seller finance the purchase price with a promissory note secured by a mortgage, wrapping the existing lien, with a balloon payment to be paid off on resale.  That way I'd have deed during the rehab, and the seller gets paid off upon resale.  

Yes, in order to have the authority to do a rehab you must have an interest in title or a construction agreement and that is often only available to a GC. Now, you could also partner with a GC and work the profit from that side with an installment agreement. Money would then need to be secured by a note, as a construction loan.

Everyone needs to understand, you do not "control" a property with an Option contract, it conveys no other rights other than the right to purchase. Secondly, I could buy a property that is under an option, my purchase would be subject to the rights of the Optionee (buyer), if the option expires I own the property. Most options floating around won't prevent this, so you need to be aware of what rights you may have, think you have, actually have. A lease doesn't give the right to make repairs in residential properties either.

If you already have an LLC, an owner can set aside an interest to the LLC, this would allow the Operating agreement to govern your interests.

First timers do need to see an attorney, while Brian's suggestion is perfectly fine, there are many aspects of fine tuning to do inside that JV agreement.

Ha! 17,000, how time flies....   :) 

Originally posted by Kristine Marie Poe:

While I usually think wraps are a bad idea, that is what I would do here.  It's short term and not keeping the loan open very long.  I'd have the seller finance the purchase price with a promissory note secured by a mortgage, wrapping the existing lien, with a balloon payment to be paid off on resale.  That way I'd have deed during the rehab, and the seller gets paid off upon resale.  

 @MICHAEL HENRY

This.  This is exactly what I was thinking.  Another option would be to take an option to buy and enter into a written agreement with the homeowner allowing you to to the work.  But I like the above suggestion much better.

An alternative would be to use a company like ready4remdel.  They will get rehab quotes for a Silver, Gold or Platinum rehab, line up a 203k loan, and provide pictures of what it will look like afterward. 

Get the house under contract and then sell it to an end buyer as "ready to remodel"  You have no dollars invested but do have your time and knowledge.  You don't have to spend the money or time to rehab, just getting the quotes lined up.

Sales proceeds will hold the amount needed to do the rehab in escrow to pay the actual expenses.

Thanks for all the great advise but after walking through the property I'm going to pass on this one. The Seller would have to pay the mortgage off and then give me the house for it to make sense. 

Originally posted by @Michael Henry :

Thanks for all the great advise but after walking through the property I'm going to pass on this one. The Seller would have to pay the mortgage off and then give me the house for it to make sense. 

 Really?  It was that bad?  On to the next one!

Yes, really. When I started the conversation I had researched the area and I had known the condition of the property from what I was told (the house need to jacked up, drain tile, and light rehab of the kitchen and other areas). It was an expired MLS so I looked at some old photos online of the interior. The ARV was easily $140,000.00. The 1st mortgage was $72,000.000 and the owner was willing to bring some cash to closing. So I was willing to do $35k - $45k in rehab before I seen the place.

Well, the whole house needed to get jacked-up and the basement foundation completely redone. So I was around $40k without doing the remodel of the actual living space. The Owner was willing to take a lose but the fear was once we lowered the house from jacking it up that the windows, doors, and flooding might not fix or would be broken from putting the house back leveled and evened. 

I had deals where the Seller brought money to closing and still gave me the house because of the area the house was located and the condition the house was in but not this bad of condition. 

As @Bryan L.  said there are other deals out there.