Re: Structuring an Owner Financed Deal

[Beverly Buella]

Hi there,

I'm looking to get some feedback from people who have put up the money for a rehab while the owner holds the note for the property. In meeting with someone to potentially list their property, I suggested putting up the money for the rehab and coming up with a payout that would work for both of us.  I haven't sat down and thought of the numbers, so I don't have that to share- but I'm just wondering how this type of deal would be structured. 

Ideally, who should be the rightful owner while the house is getting rehabbed? The owner wants to avoid the transfer tax we have in PA but I'm thinking it's best for me to just pay the transfer tax and have him be the mortgagee, with the mortgage due upon the sale of the property. If we don't do it this way, isn't there a risk that I'm taking on if I put up the money to rehab it and then he goes ahead and sells it? Or is there a strategy where the house isn't deeded over to me, we avoid transfer tax- but I'm still protected if I put up the money for the rehab? I don't envision that happening, but I'm just wondering how do I put up the money for a rehab for a house I don't own? He has a certain amount he'd ideally like to walk away with, and I have a certain return I want to make back on my money. We are able to agree on that and then any income beyond that we would split.  He's also fine with being hands off on any decision making with regards to the rehab, as long as it doesn't decrease the property's value.  

Lastly, if you have any feedback on whether or not you advise to do a deal this way, or pros and cons/takeaways from your experience, please share!

Thanks-