Fix n' Flip, Rental or....

[Patrick D.]

I've come across what I think is an interesting, potential deal. I went into this property looking at it as a long term, cash flow rental and may come out of it as a fix and flip...

Here's the scenario:
Two Family House
Asking Price: $60k (cash only), needs $50k worth of work)
Monthly Income - $2400 ($1200/unit)
CAP Rate based purchase (and rehab) of $110k is 16.7%
Current seller is a contractor who got hurt bad by the recession.

[u]Option 1 - My first thought
Offer $35k. Ideal price, mid $40s. Again, needs a ton of work.
Buy the property with a 50/50 partner (I have roughly $50k to invest at this moment) and partner would put up other $50k (or equal amount, enough to complete house). Fix the property, get it fully rented. Post-construction value somewhere between $130k - $150k. In 6-12 months do a cash out refi for 70% of value.

[/u]Option 2 - Thinking outside the box
Offer $35k. Ideal price, mid $40s for property. Again, needs a ton of work.
The seller is pretty desperate to sell. He is a home builder/contractor (I'm not) and bought this property as an investment a few years back. Economy turned sour, he needs to sell, we all know the story. My thought is to buy the house for $40k or so, partner with the seller (he drew up a very detailed scope of work that totals about $50k in repairs but I feel there is still room for negotiation in his number). I'm in for $45k, maybe seller (as my partner) is in for $45k or so. Work done in 1-2 months, back on market. Hopefully sell - low end $130k, high end $150k.

There are a few kickers here -
- The current seller has unpaid back taxes - what can I do about this? How would I go about purchasing tax liens, etc?
- If deal goes sour, I own the property. While he may be able to put a lien against it, I still own the real estate.

I'm looking for ideas and creativity. Obviously, Option #1 is ideal but it is tough finding a partner as I am just starting up. Let me know what you all think.

Thanks!