Structuring a rehab deal to profit split with homeowner/seller

9 Replies

Hi all,

Great site and I'm glad that I've found this a couple months ago. I've been lurking around for a bit and getting some great education out of it. I was introduced to this site by a Pro member and now asking my first question here. I am currently working on a deal (SFR) with the following scenario:

  1. 1.)  Realistic 525K ARV and the owner owns it 100% free and clear
  2. 2.) Rehab dollars needed to bring the property up to the ARV potential is about 85 - 100K
  3. 3.)  I made the owner an offer for 325K. He is more interested in partnering up to have me rehab it and split the profits
  4. 5.)  I already have a very good general contractor that I've been planning on working with. He had walked the property and we both came to a high level estimate of about 85 - 100K rehab (that includes some contingencies)
  5. 6.)  The single family house is in pretty good condition and very clean given the 1950's built, and rehab is pretty much to bring it up to modern standards
  6. 7.) As for rehab funds and associated cost, I have a portion and will find a way to get private money, JV, or possibly some from the GC himself for the remaining portion

I want to get some form of a proposal going for this asap. I am thinking I will need to start with having him at least sell it to me owner financing, so he takes a note. Then I get the rehab done and split the profits based on what we agreed upon.

What are your suggestions for a fair structure? He's not desperate to sell the house but he does want to get rid of it as he and his wife are already staying somewhere else.

If you are splitting the profit with the seller it sounds as if you already have a partner(which is the seller). You pay the seller $325K to purchase the SFR. Then you need to secure funding for the rehab cost from $85K to $100K. What are the seller finance terms that you propose? The seller is getting $325K plus 1/2 or 1/3 of the after sale profit, why?! Have you worked out the numbers on bringing in a 2nd partner, therefore splitting whatever profits 3 ways? Just curious...

Kudos,

Mary

I haven't made a formal proposal yet and I am tinkering with what would be the best way.  The seller is the one that wants to do the profit split instead of selling it to me outright at a discount.

Let's say the seller will just owner finance it to me by taking a note with no or very minimal interest rate ... then that's his contribution to the deal.  I will bring to the deal the funds for the rehab, plus the actual work itself by being the GC for some of the simpler parts and manage another more experienced GC for the more difficult parts, plus all the related transactions and also the final sales of the property ... so that's my contribution of the deal.  What should the seller's profit % be?  50% based on the 325k as a base?

Use a Joint Venture with the Seller

Buy on sub to and a note no payments 6 mo

Own it

Get private loan for rehab

Fix it

Resell it

Pay off loans and profit at least 10 K

Factor in all costs to sell

Brian, so you would to a Sub2 over a straight owner financing with no payments for 6 months? What would be the pros of doing the Sub2 and not the owner financing?

Hi @James NA

How did things end up with the potential JV with the Homeowner?

Has anyone had success doing a Joint Venture with a seller (Homeowner) where the seller wants to share in the profits of the eventual home sale?

What is the best way to structure such a deal?

Sub2 plus note if there is existing financing.

Note plus mortg DOT in first position if free and clear :)

JV Agreement and P&S, close on seller financing, own it, fix it, resell it with an agent, pay the costs to sell, pay off note to seller and note to private lender for rehab loan, profit.