Creative Financing, Appreciation, Equity

[Sergio L. Garza]

Sup, dudes and dudettes.

I drive a cab. I have this client I've been driving around for two years and through our regular conversation she mentions she is planning on moving out. She plans on moving closer to her daughter. She's tired of the constant traveling. When I heard that my spidy senses began to tingle and I put my real estate investment cap on. "Hey, I am a real estate investor.", I says. "Oh, really. Well, I won't be moving out until next year in spring.", she replied. We've since stayed in contact and she says she's interested in meeting up with my buyer's realtor and I for a meeting and a house walk through.

About the house: It's in pristine condition, but I've only seen the dining room area and the kitchen. The house isn't cluttered, so from what I've seen it's in great shape. I just haven't seen all four rooms, living room, attic and bathrooms. I have no doubts the house is in near perfect condition. She is very neat.

I asked my mentor if I could sell the house at $75,000 over market value, but he mentioned if I double escrow it at that price I could be liable for bank fraud. He said it would have to be market value or a little above market value, but not too much in order to double escrow. This got me thinking. I've already made a tentative offer of 10% below market value and it got me the meeting. How do I get her more, if she wants more, because I certainly want more?

Here is the solution I came up with: I should use an option agreement where she can get a 32% down payment from what she is asking for the house and there are no monthly charges for a year and a day. After the year and a day she gets $1,000/month for 10 years. After ten years there's a balloon where everything owed is due. After the time has passed, the buyer has equity through appreciation and made profit if they chose to rent it or sell it after they finish the purchase. Not only that, but the owner gets more and I get more and my realtor gets more.

Where is the profit for the investor? Well, to make the profit I would ask for a 42% down payment from my asking price and ask for $1300/month. She does own the house free and clear, so those extra $300 would be my "management fee". Or, I could ask for a 37% down payment from my asking price and charge more per month. It seems like the options are endless. I could even just charge my 42% down payment and be happy with that and manage the transfer of funds free of charge for 10-11 years.

This deal is going to happen and all I am trying to do is create options that will trigger the seller to sign my contract. I want to double escrow, but if it comes down to creative financing and options, I am willing to do that, too.

Any ideas, advice or CONSTRUCTIVE CRITICISM would be appreciated. Thanks for reading.