Putting money for repairs in escrow as the buyer

[Derick Hanna]

I want to purchase a value add duplex. The seller is a friend and would like to owner finance. PP:260k, 5% interest, 10% down, 20 year mortgage. The property needs around 30k repairs. ARV: 320k. What I would like to do is put 30k of my money in escrow for repairs instead of doing a down payment. My thought is that the seller still knows I have "skin in the game." If I default before the repairs, they keep the money. Alternatively, if I default after the repairs they benefit from the rehab and get the house back. Assuming I can convince the seller to do this, does it make sense? Will a title company be able to do that? Thanks in advance!

[Steve Vaughan]

Quote from @Derick Hanna:

I want to purchase a value add duplex. The seller is a friend and would like to owner finance. PP:260k, 5% interest, 10% down, 20 year mortgage. The property needs around 30k repairs. ARV: 320k. What I would like to do is put 30k of my money in escrow for repairs instead of doing a down payment. My thought is that the seller still knows I have "skin in the game." If I default before the repairs, they keep the money. Alternatively, if I default after the repairs they benefit from the rehab and get the house back. Assuming I can convince the seller to do this, does it make sense? Will a title company be able to do that? Thanks in advance!

I've seen this done for BRRRs (adding repairs to the HUD-1 or settlement statement) to increase the PP so they can get a rate/term refi vs cash out.

But this SF isn't bad so I wouldn't rush to refi. I'd keep the repair $.  Probably better for your seller also.  They will have closing costs and not beneficial to report a $290k sale vs $260k tax-wise.