Creative Deal - Need Advice/Expertise

[James Reynolds]

Can someone please advise on the best way to proceed with a creative deal. I will try to be as concise as possible:

-Owner/seller is willing to sell me distressed vacant property for 250k (numbers are hypothetical)

-Owner does have a current mortgage on the property for approx 100k

-We signed a rent-to-own lease where seller gets 2000/month (which does not go toward sale price) and I have the option to purch anytime for 250k

-During that time, I will do approx 100k in rehab

-Once rehab is complete, I will sell property and seller would get his 250k and keep any rent payments he collected

What is the best way to structure this deal? Hope that made sense and was easy to follow.

[Stuart Udis]

I would strongly advise against undertaking capital improvements with only a lease interest. You are better served transferring title and using seller financing if obtaining traditional lender financing is not plausible. However, doing some quick math, if the agreement of sale price is $250,000 and you intend on spending $100,000 on improvements, the total transaction costs including settlement and financing costs should not exceed $400,000.00. With the $100,00 you intend on using for the renovation, you shouldn't have any issues treating this as the equity portion of the capital stack and securing a bank loan for the remaining $300,000 with some added contingent funds available.  You should also speak with your accountant as there are likely long term capital gain benefits that may apply depending on the hold period you will miss out on using your approach.