Anyone ever purchase for low then share upside with owner?

Question

Hi Everyone, I’m investing in Fix & Flips in Oklahoma City and Philadelphia. I was wondering if anyone ever tried to make a deal with an owner where they purchase the property for much below the asking price, pay for the rehab and then split profits above a certain sale price? This way I’m protected that I purchased low enough while the owner can benefit from the upside if I surpass a certain number.

Has anyone ever tried to do something like this? If so, please tell me about your experience.

Also, I’m wondering if there is a tax disadvantage here. When he sells me the property he pays capital gains tax. But when I sell the property and give him some of the profits, wouldn't he be taxed at his regular tax brackets and not capital gains levels?

Thoughts? Thanks!

Jay Hinrichs · Answer

@Derek Dombeck to add to Derek's good examples you can also do an equity participation loan.

I have done literally hundreds of those over the years pretty cool way to do this stuff.

Derek Dombeck · Answer

@Zev Dobuler

I have done this and it can be done in multiple ways. You could go on title with the owner as Tenants in Common on the deed, or secure an option on the property for a percentage of the eventual sale, or use a Joint Venture contract. If the owner has lived in the property 2 of the last 5 years, they will not pay a capital gain tax. If not, each party will be taxed based on their percentage of ownership/ profit. ( not giving tax advise ).

Happy Investing

Derek Dombeck