Suggestions on How to Structure a Deal (buy and hold with rehab)

[Jonathan S.]

I recently purchased a 2 family in a highly competitive area in NJ which i'm house hacking. I've been speaking with my neighbor who has lived there for years and slowly planting the seed to buy his property. His property is also a 2 family however it is not in as good of shape and he doesn't rent it out. He is considering the idea but floated this proposal to me last night.

He is looking for someone/ contractor to front the costs to rehab the property then move forward essentially as partners where the individual would retain 70% of the gross rental and the owner would take the other 30%. Owner would maintain and pay the existing mortgage/ taxes etc. Ideally he wants to keep the property to maintain his retirement nest egg since he understands the actual value fixed up and appreciation potential moving forward. His idea is also that he loves the town and knows if he sells he'll probably never be able to come back in.

Interested to hear some ideas on how to structure the deal to be beneficial for both sides or maybe counter in a different fashion.

[Jonathan S.]

Originally posted by @Jonathan Greene:

Love the property possibility, hate his proposal. It's way too complicated and convoluted. I don't want a percentage of anything with my neighbor when all I really want to do is buy him out. What's the issue with selling? Buy it and rent one unit back to him or something, but with the scenario you described it just sounds like he is trying to get someone to fix his house up and add value for him.

I completely agree and thats what made me feel un-easy. It seems like he wants a piece of the pie when its fixed up and worth double and then some what he paid. The way I understand it is he needs money to retire and he wants to reduce his living expenses, but he's afraid of selling and not being able to come back to montclair it seems.

I think a clever counter offer would be to assume the mortgage to bring his housing expense to zero. Let him stay in a unit and then rehab and rent the other unit. Add a balloon clause or something so in 5-10 whatever years when he needs to actually retire, I can refi the property and get him and myself some cash. Essentially a sub-to.

Ultimately I just want to own the property since its next door to one I already own and is a phenomenal location. So i'm willing to take some hit in the short term to gain ownership and help him out but it needs to make sense and I need to protect myself.