Structuring the deal

[Wendy S.]

Good evening all, hope 2023 is going great! I would like some help in structuring a deal.

Prospective Partner (Pp) owes $70K to owner on a paid off property with PV of $200K. Pp has no money and bad credit.

Conditions were rent to own, $70K owing and owner wants to be paid off.

Option 1

I pay off $70K to owner, then get HELOC for $150K (75% ltv on investment property). Pay out PP $80K minus loan fees and recapture my $70K. Pp pays market rent ( currently paying $1,400 with $600 going towards paydown).

Is a $17K lien on said property for Pp reasonable or 10% equity position for them?

Option 2

Buy property outright from owner with 25% DSCR loan at 8.5% for $200K with them getting their $70K and Pp gets $80K. I now control the property with loan attached. Pp pays rent which will be used to repay the loan. Again what would be a fair equity split for Pp?

Pp wants to improve property to 3 separate units, with him doing all the work, then have equity with monthly cash flow while renting 1 of the 3 units.

Or option 3...suggestions?

I want a win-win 50/50 if possible.

If remodel doesn't work then property could be resold for worst case

($200K-8%-150K)/2 = $17,000 each.