Help me understand this deal

[David McCracken]

I was approached with a deal that I'm trying to understand better. The owner of a deer farm is expanding his business. He doesn't want to "muddy the water" with a mortgage on his current primary residence. They want me to purchase their property (comps say it's worth around $232,000) for $150,000 cash. I hold the property title for 18 months. After that term, I'm obligated to sell the property to the business owner.

What questions do I need to ask to get more clarification on this deal? What is the best way for me to benefit from this deal? I'm normally a simple multifamily buy and hold investor so this world is new to me. Thank you in advance.

[Jason D.]

@David McCracken if I'm understanding correctly, you should be looking at this from a lending perspective. It sounds like they're looking to get $150k, backed by their property, and then get the $150k back in 18 months?

Why don't the want a "mortgage" on the property? That seems fishy....

What is happening to the property while you have title? Are they still managing the property as normal?

If they're financials check out and you are comfortable lending them $150k, you would have to agree with a "resale" price (what profit you want to make on the loan), and who is paying the transfer fees. I would certainly run this by a lawyer and an accountant, because there will be a lot of taxable gain with these transactions.

I feel like you would be much better off loaning them the money with a 1st position lein on the property

A mortgage would be much cheaper that what they are proposing.