Seller writing you a check after closing

[Bridget Huebner]

I remember hearing about this strategy on either the Bigger Pockets Podcast or the Real Estate Rookie, but I can't find the episode for the life of me.

The guest on this episode had used a creative financing strategy by doing the following (I'm going to make up the numbers for this example, so they may not be totally accurate)

The seller wanted to sell his beat up house for 100k. It was off market

The house flipper paid for the renovation of this man's home while it was still in the seller's name. The whole renovation cost 50k.

They then sold this house for let's say 200k. They had an agreement for what would be done with this money after the sale. So the man selling his house got the 100k he initially asked for, and the flipper got everything that was left. He got his 50k back AND made another 50 on top of it.

Is there a name for this strategy? Is this a strategy that can be used for fixing up and purchasing a rental property?

Does anyone know which episode I am describing?

[Bill B.]

You’d want to find someone that’s done it successfully first. You have big risks for a little reward. 

The contractor finds more problems you have to fix or disclose to buyers.

You’re paying the $10-$15k in closing costs. (On $200k)
what if seller decides not to sell?

What if seller decides to sell for $150k? or less? He owns the property. 
you’re going to have to use licensed, bonded, workers with permits since you don’t own it and plan to sell it  

If it’s worth $100k or more already, then you should just buy it, or someone else should have. 
what if it was only worth $80k? 

you sell for $180k (doing the PERFECT upgrades that double your investment instead of the usual upgrades that only give you your money back. Minus $12k in closing costs. You make $18k. What if you make MAGICAL but not perfect upgrades and make 50% on your upgrades? So now you sell for $155k ($80k plus $75k) minus $10k in closing and you did all the work to lose $5k. 

TLDR: get an appraisal and if you’re getting a 20% discount buy it. If you’re not then you’d starting at a loss covering closings costs instead of the seller covering them. And then hoping for perfection. As long as it’s just to test a business case and you’ll be financially ok if you don’t make any money, go for it. If you’re truly in CA make sure it’s legal and get a solid contract from someone who’s been doing it for years.