Split funding/Equity partnerships
Has any seen the show "Unsellable Houses" on HGTV? The premise of the show is basically the investor partner with homeowners who are having a difficult time selling their "UGLY" homes by helping them renovate/update it before putting it back on the market fully updated and getting full market value for it. Once the home sells the investor subtracts their rehab cost, the sales cost and then they split the profit. For example property listed for 250k (what the seller wants) but its not selling, the house needs about 50k of work and the ARV is 400k.
400k New sales price -(30k sales cost) - (50k in rehab) = 320k (gross)-250k (minimum seller wants) = 70k overall profit. The 70k is then split between the seller and investor. So seller now gets 285k. The investor gets 85k with a 35k net profit.
This concept appears to be a win win for both the homeowner and investor. The homeowner makes way more money than they would selling an "Ugly" House and the investor makes atleast a 50% return on his money spent and doesn't have to worry about buying the house and all the other associated cost.
I've heard this concept being referred to as split funding, profit split or Equity partnerships. Have anyone actually done this model, what are the cons?