Creative Deal Structure - Anyone done this?

4 Replies

Looking to see if anybody has any experience structuring a deal like the one I will discuss below and how it turned out for you. I will just run through the general numbers on a deal I'm working on now as that makes it easier for me to explain whats in my head. I'm unsure if this strategy would work for this deal b/c it may just be too tight but I digress.

So I received a call from a motivated seller going through a divorce. He has a home in a great school district that is in good shape, in reality its rent ready or pretty much rent ready. But, he's going through a divorce and is not living in the house and is losing money monthly as it continues to not sell. He has had 2 contracts fall through on the house because of small things like some soft wood around windows, windows painted shut, and a small dip in the floor of the master bedroom. Long story short, he's frustrated by the process of selling this house and wants to be done. Went and met with him in hopes of securing the contract and wholesaling it to a buy & hold investor as a 1% rental. Made a cash offer of 130k but he seemed hesitant and did not agree to the contract at the time of our meeting.  The house if in perfect condition (could take only around 10k to fix up but seller does not have the money) is worth 180-200k. Would it make sense for me to offer this seller 100k and for him to keep the house in his name, I would take over the mortgage payments, fund the rehab, re-list in hopes of getting around 190k and split the difference between the 100k & 190k? 

This way the seller could come out with his 100k + 45k profit split less the realtor fees which would put him at around 140k as opposed to the 130k I offered him. I come out better as well as I get 45k less my 10k rehab costs and holding costs that could come out around 30k profit for me instead of a 10k assignment as a wholesaler. It is more risk on the buyer and seller but has potentially a higher reward. Anyone with any experience on this? I'm also very interested in structuring future deals like this as it would allow someone like me who is new to the game to get into rehab's on houses easier as I could potentially structure deals where I only have to bring rehab money. I'm sure there are many things I'm not thinking about that could come up in a deal like this but really just curious to see if anyone has used a similar structure. I hope all of this makes sense.

@Amy Pedersen

@Ryan Horne - there is another thread here that is along a similar line (it was an obscure thread, so you'd probably never find it haha)

I gave some advice for splitting the profit with the seller. You might ask the original poster of that thread what he decided to do.

Basically, it is a win-win situation if you successfully flip the property and sell it for him. He makes more money than he normally would have, and you earn more at the cost of funding the rehab.

Just make sure that you have a firm grasp of what the rehab costs will be, along with the true ARV of the property. Take into account the closing costs and fees, and preferably have a 1031 exchange in the makings so you can avoid some taxes. I'm not sure if you'll be able to do that since the property won't be in your name - someone who knows more about that can probably help out for that information.

Best of luck! Keep us posted if you move forward with this

Thank you very much @Ben Wilkins . It seems like a win-win to me as well, I just want to make sure there is nothing obvious I am missing. I'm sure I'd have to get some kind of special contract drawn up by an attorney but if I'm looking to do this over and over that would pay for itself quickly. I'll check out the thread you linked because I was having trouble finding anything on this.

Hi @Ryan Horne and @Ben Wilkins ,

I had a couple of comments regarding the 1031 Exchange transaction contemplated above. 

It is critical for the investor to intend to hold the property for rental, investment or business use in order to qualify for 1031 Exchange treatment. Properties acquired with the intent to rehab/fix and then sell as quickly as possible ("flip") are actually held for sale as opposed to held for investment and do not technically qualify for 1031 Exchange treatment. Now, if you were to acquire, rehab and then hold the property for rental, investment or business use it would qualify for 1031 Exchange treatment.

The other comment is regarding the strategy of working with the proposed seller. You would need to acquire the property with the intent to hold for rental/investment use in order to qualify for 1031 Exchange treatment. Working with and helping the seller get the property ready for sale and then ultimately selling would not qualify for 1031 Exchange treatment.