How to structure this seller-finances offer on a flip?

[Cori Leste]

I live in a desirable neighborhood in Portland and there’s a house around the corner I’ve had my eye on that’s been on the market since the spring. It needs literally everything: electrical, roof, ext paint (lead), plumbing, kitchen, and baths. Floors are in great condition. They came on the market way too high and have already turned down a few offers. (Emotional- it was their moms). By now they’re highly motivated because homes don’t really sell in winter here, and they’ve already come down $100k in price.

I walked it yesterday with my agent and contractor. At the price they’re at now, the margins are still too risky to do a flip.

I’m considering putting together a seller-financed offer where I’ll put down $X and pay $X/mo and do all the work in order to have it back on the market by next summer. In order to mitigate the risk to myself I wanted to build in a guaranteed amount I get from the sale and stipulate contractor and I get paid first, and the sellers get whatever the balance is. In order to incentivize all parties to be on time and budget, as well as do high quality work required for this neighborhood, build in a schedule of profit sharing at various thresholds of sale price, to be shared between me, contractor, and seller.

Has anyone done a deal like this? How should I structure offer? I’ve worked with the contractor on a big project before so I’m confident in that side of the equation.

Any thoughts, concerns, advice, personal experiences greatly appreciated!

[Account Closed]

I'm currently in probate hell over my mother's estate.  What the heirs probably want is a quick sale, so they can quit fighting and be done with it.  It's obvious they couldn't agree to who gets the house and/or none of them could afford to buy out the other heirs.  

So, I'd think in terms of what the other side wants in your negotiation.  Trying to structure a complicated deal and get more than one heir on board will probably be about impossible.  Plus, if you're telling them they need to wait until next summer for their money, they will probably think they'd be better off to just wait until next summer to sell it.

Now, next summer is just 7 months away or so.  So, you need to offer them a sweet deal that is better than them just waiting until next summer to sell it and possibly get more money for it in a hot market - I'm assuming the market in Portland is normally hot.  And, you can assume they're already fighting about who is responsible for paying for the upkeep, who is making sure the pipes don't freeze, dealing with repairs, gardening, do they just want to rent it out....major hassles they're dealing with between them, probably.

What can you offer them that's too good to refuse?  If you were them, what would be too good to refuse for all heirs, hopefully?

If it was me as one of the heirs, I might go for a deal like you offering to buy it for $700,000 with whatever down you can afford on an owner-carry, at 10% interest with a balloon payment due in August, or some version of that.  That way, it's sold, they don't have to deal with any more expenses on it, and they know they'll get their money in 8 months.  It's money in the bank, and they don't have to argue anymore about who is taking care of it.  And if they have to foreclose on you, they will have an upgraded house they can just sell it for more.  Those would be good selling points, in my opinion.  And you have complete control over the contractor, etc., because it's yours.