Owner owes $72,000.
House needs $10,000 in repairs. Owner has no money to fix.
Value of house is $135,000.
I’m willing to do repairs on property if Owner puts me on title.
and we sell and split proceeds 50/50.
Anything I should be careful for?
or any other ideas let me know. Thank you
:biggrin
If I understand the numbers…this is what it looks like to me:
$135,000 ARV
<$ 10,000> Less Repairs
<$ 13,500> Less Marketing/Agency/Closing Costs
<$ 72,000> Less Loan Balance
$ 39,500 Equals Gross Profit
<$ 19,750> Less 50/50 Profit Split
<$ 19,750> Equals Profit Split
190% Managing Partner’s Annual COC Return
There’s so many details to think about here, but try to make it as simple as possible, despite the fact that you’re getting in bed with a seller you don’t know. I mean this is like marrying someone for their money…in a strong sense.
I would rather take title, give the seller a $19,750, no interest note, secured solely against the house, payable upon sale of the house.
This means I “gurantee” the seller a fixed, sure profit, assume all the overhead and carrying costs, but I also don’t have to pass everything I do by an amateur seller, w/wo an emotional attachment to the house itself, whom might also second-guess my every decision.
Of course guaranteeing the seller a fixed profit, assuming all the risks of a sale, is worth ‘something’ more than just the equivalent of half the profits. So, maybe $15k to the seller, and the remaining $$ to you, is fair.
The deal looks great on paper, but the devil’s in the emergent details.
So, I would rather get the deed, and give the seller a note. Much, much cleaner deal.
escrow, you didn’t say what the seller wants? Maybe all they want is to be rid of the house, in which case you can buy it sub2 for the $72k and keep all the profit.
Javipa hit the nail on the head. This is not just a project about the numbers. You have emotion here. Who decides how much and on what the remodeling money is spent on? Who decides on the quality of the improvements, color, design blah blah blah. Sounds like the beginning of a really regrettable decision.
Buy the house subject 2 and you take over loan payments and handle all of the repairs. The agreement between you and the seller is that he receives $15k cash upon the sale or within 6 months - which ever comes first. If you can’t remodel and sell within 6 months, you will have enough equity for a refi.