I've been investing for 13 years now. I have done everything from wholesaling, to flips, to land development. I don't do a lot of 'creative' type of deals. My DD process skimmed through the buying stage like I was an expert in novations. We still made out, but, it could have been better. It's easy to share wins/good decisions, hopefully my mistake can help someone out there!

All that said, I’d do this deal again.... I'd just tighten my pre-closing due diligence.

The seller was facing foreclosure on a three-bedroom house in Northwest Boise. We structured it as a novation. The seller kept title, we put up the money and managed the renovation, and I listed the finished house. When we found a buyer, their purchase agreement replaced ours. The seller deeded the house straight to them.

Our agreement used $365,000 as the starting point for dividing the sale proceeds. We wired $32,269.82 to bring the mortgage current, then got to work on the kitchen, both baths, flooring and yard. The house sold for $510,000 in September.

I read the forbearance paperwork wrong, it was straight forward, but I misunderstood as this is not a common strategy of mine. There was a second note. The amount was close enough to the figure we’d already accounted for that I treated them as the same obligation. The wire brought the first mortgage current, but did not include a forbearance recorded during COVID era forbearance programs.

At closing, title held back $25,722.65 for it. The seller would otherwise have received about $18,900. That went toward the holdback first. Once the seller’s proceeds hit zero, there was still about $6,800 to cover. I took that out of our side so the seller could close without bringing a check.

We received roughly $147,700 at closing, with our share of the holdback already reflected in that number. Against about $106,000 in project costs, we finished around $37,000 after project compensation, before company overhead and taxes. We made less than I wanted on a job where we funded the work on "somebody else’s" house.

Better DD on my part would have changed the bottom line on this one by $6,800.00.

Hopefully this helps if anyone is starting out in novations!