Any deal junkies want to weigh in on a creative opportunity?

[Matt Ridenour]

Hello everyone!  
i have a very motivated seller with a lot of deferred maintenance. 
He isn’t savvy in real estate and I want to make sure I treat him very fairly. 
He owes 130k. My rehab estimate is 200k with an ARV of 575-600k (probably more but being safe)

He would like 300k. I know I can’t give him that. He is open to sub to, and he even would let me pay rent for him somewhere else in town.  
I’m trying to secure the property for as little as possible without screwing him over. 
my current best thought is a sub to, a year’s rent and a profit share once it’s sold. Maybe some walking cash. 
Any big ideas?

I’d love to hop on a call with a big thinker if you’ve got time!  Can’t give my cell I don’t think, but message and I’ll get right to you. 
I owe him an offer tomorrow morning. 😱

[Don Konipol]

Quote from @Matt Ridenour:

Hello everyone!  
i have a very motivated seller with a lot of deferred maintenance. 
He isn’t savvy in real estate and I want to make sure I treat him very fairly. 
He owes 130k. My rehab estimate is 200k with an ARV of 575-600k (probably more but being safe)

He would like 300k. I know I can’t give him that. He is open to sub to, and he even would let me pay rent for him somewhere else in town.  
I’m trying to secure the property for as little as possible without screwing him over. 
my current best thought is a sub to, a year’s rent and a profit share once it’s sold. Maybe some walking cash. 
Any big ideas?

I’d love to hop on a call with a big thinker if you’ve got time!  Can’t give my cell I don’t think, but message and I’ll get right to you. 
I owe him an offer tomorrow morning. 😱

I can’t address your Ethical concerns since each person lives by different standards 

I can tell you that a straight purchase - sale has the least chance of future complications, lawsuits, disagreements, disputes, etc.  Transactions where seller carries financing or sub to has a greater percentage chance of disputes, lawsuits……. And, transactions which are partial sale, partial joint venture, seller getting a “percentage “ of “profit” upon resale, etc, have a very high probability of dispute and future legal action.  Just for starters, here are SOME of the charges a plaintiff attorney will charge in lawsuit in the scenario where you agree to pay the seller a “share” of your profits 
1. You sold his client an unregistered security
2. You violated Dodd Frank act 
3. You failed to comply with CFBP regulations
4. Your profit report is fraudulent
5. You coerced the plaintiff into selling under fraudulent terms
6. You misrepresented your abilities to successfully manage the process
7. You violated the mortgage due on sale clause
8. You denied the plaintiff due process
9. The agreement was fraudulent on its basis 
10. You do not hold a general contractors license 
11. You failed to maintain proper insurance coverage 

Since you have no statutory protections, it’s likely the seller will be able to secure the services of an attorney on a contingency basis, while you will have to pay an attorney to defend you at an hourly rate covered by retainer(s).  Some of these charges may or not have any basis in fact; however, you will be required to defend every one of the charges brought by the attorney representing the seller, each adding to you attorney bill at $300 -400 per hour.  Competent counsel in most parts of the US will cost $15 - 20k to get to the point of being prepared for trial, so likely after your attorney extracts the most he can reasonably expect out of you he will recommend settling - that means you giving up any profit you made, or throwing g in more money accentuating any loss.  

I expect this post will be followed by a number of post from people who entered into these agreements - and it all worked beautifully.  About half of these will be complete fabrications.  The other half will be true - but it’s the luck of the draw.  Do it enough times and anyone will get burned. 

Now, some people’s business model may seem to lend itself to these potential lawsuits.  But they set up their business so that the chances of being sued are minimal; investor expectations are realistic; investors (and be sure, in your scenario the seller is an INVESTOR in your deal, if you don’t think so look up the SEC definition of investor) are informed of ALL the risks they may be incurring, and the business model includes disclosure documents that disclose EVERYTHING that may be relevant about the sponsor, deal, etc. 

So be warned, entering into a partnership in any form where you are making the decisions and the other party (s) are passive has a high probability of not ending well .