Partnering with the Seller

[Daniel Kong]

Hi BP! I'm talking with some sellers now, and they are interested in partnering together. Something along the lines where we would come and fix the property and their sale price to us would depend on what we actually sell it for on the back end. Has anyone done something like this before? Looking for ideas on how to structure it so it protects and benefits both us and the seller. I figure if anyone has done this before or has insight, its gotta be someone from BP. Thanks in advance!

[Jason Dillard]

Yes, we have.  Buy the property and give them a note and mortgage that is due upon sale.  Make the agreement that you will repair and put on market and leave on market until it sells.

If the property is free and clear then:  Make the note equal to their price plus a percentage of the net proceeds of sale minus your expense to rehab.  In this case you could even give them a 2nd and borrow the rehab in 1st position from your private lender.

If they have debt:  Make the note equal to the their price minus debt plus a percentage of the net proceeds of sale minus your expense to rehab.   In this case negotiate who will make payment in mean time.

Free and Clear Example:

Asking price is 100k

ARV is 200k

Repairs 40k

Debt is 0

How to buy:

Go get 1st for 40k from private lender (get this to accrue/no payments).

Give seller a 2nd for 100k plus 50% of net proceeds of sale.

At close the 40k goes to 1st...100k goes to seller...and if there was not cc or interest then 60k is split between you and seller.

You make 30k.  If you can squeeze the cc at 1st closing into the 40k(reduce rehab cost a little), then you did it with no money out of pocket.